Big banks should be charged a fee to pay for bailouts as it will make them less prone to reckless lending, U.S. Treasury Secretary Timothy Geithner told lawmakers on Tuesday as he sought support for the proposal.

The fee would be levied over 10 years and set at a level to fully recover costs of the government's Troubled Asset Relief Program (TARP) put in place to stabilize the banking system at the height of the financial crisis.

Funds would be used to pay down the swelling U.S. deficit. The fee would not be a substitute for tougher capital standards included in a push by President Barack Obama for the biggest banking overhaul since the Great Depression.

The fee is designed to complement efforts to improve the stability of our financial system by providing modest incentives against funding riskier activities with less stable funding, he told the Senate Finance Committee.

Geithner ran into skeptical questioning but not outright opposition to taxing banks, which are among the least popular industry groups among lawmakers.

The move to recoup bailout funds accompanies opinion polls showing voters concerned about exploding federal budget deficits after emergency spending to counter the effects of the recession.

Geithner said the fee would restrain banks' risk-taking by making it more costly for them to take on big bets without having the assets to back them up.

The virtue of this design is...you can think of it as a too-big-to-fail tax, a tax on leverage, a tax on risk but its purpose...is to meet the legal obligation under the law to cover...(the state's) losses, Geithner said.

The charge could be kept in place past 10 years if necessary to fully recover costs. It would complement broader financial reform proposals now under consideration on the Senate floor. The fee would apply only to the biggest institutions -- those with assets of $50 billion or more that represent only about 1 percent of U.S. financial firms.

DUCKS VETO QUESTION

Proposals for a global bank levy ran into stiff resistance at meetings of the International Monetary Fund and Group of 20 last month. Geithner's testimony showed the U.S. administration is still pushing on with some form of charge.

His appearance in the Senate comes amid a battle over Democrats' sweeping reform of financial regulation.

He dodged questions about whether President Barack Obama would veto any bill that would impose a bank tax but allow the funds to be used for purposes other than paying down budget deficits.

The president believes very strongly that the resources raised from this fee should go to cover the TARP costs and reduce the deficit...That's the president's position and he strongly believes that, Geithner said.

It was unclear how much of the $700-billion TARP program would be needed to stabilize the financial system.

Estimates of TARP's eventual cost to taxpayers have ranged from $109 billion to $117 billion. Geithner said he thought that in the end it will be probably lower than $100 billion.

We anticipate that our fee would raise about $90 billion over 10 years, and believe that it should stay in place longer, if necessary, to ensure that the cost of TARP is fully recouped, Geithner said.

He said Treasury was working with other governments that were considering a similar fee but didn't identify them.

The International Monetary Fund proposed a coordinated glob The charge could be kept in place past 10 years if necessary to fully recover costs. It would complement broader financial reform proposals now under consideration on the Senate floor. The fee would apply only to the biggest institutions -- those with assets of $50 billion or more that represent only about 1 percent of U.S. financial firms. al bank levy to pay for future bailouts but some governments, including Canada, were vehemently opposed.

The Obama administration is pressing ahead with its own plan, which Geithner said it is trying to design in a way that improves the chances that other governments will adopt similar measures.

(additional reporting by David Lawder, Mark Felsenthal and Corbett Daly; Editing by Andrew Hay)

(Reporting by Glenn Somerville; editing by Patrick Graham)

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