Industry watchers' description of the plan to charge a 15-basis-point fee on net liabilities ranged from an annoying, yet manageable, cost to a misguided policy.
Besides recouping the cost of rescuing the industry, the tax is intended to discourage "excessive" size and risk-taking, administration officials said.
But the tax would do little to curb behaviors that policymakers want to keep in check because it would be less onerous than many other costs and challenges already faced by the industry. Early calculations by several analysts say large companies such as Bank of America Corp. and JPMorgan Chase & Co. would pay about $1.5 billion per year.
"This is a marginal disincentive for the use of leverage," said Sean Ryan, an analyst at Wisco Research. "I am convinced that people in Washington don't want to change how Wall Street works but they want a piece of the action. This accomplishes that."
Others were more blunt.
"The new big-bank tax is just like charging a nickel sin tax on a half-gallon of cheap liquor — it may make moralists feel good, but it doesn't do much to stop bad behavior," said Karen Shaw Petrou, managing director of Federal Financial Analytics Inc. "A penalty tax for large financial firms does nothing to address too big to fail or root out the real causes of the financial crisis. In fact, it's a distraction."
Petrou said the move could actually hurt the fight to curb too big to fail rather than help.
Lobbyists and political analysts warned the tax could get enacted, but said the bigger problem is the broader political frenzy feeding it.
"All bankers even those not affected directly by it should be very concerned about the renewed harsh rhetoric about banking," said Ed Yingling, president and CEO of the American Bankers Association. "The public doesn't necessarily hear all the distinctions and this type of rhetoric can be broadly harmful to the industry."
In announcing the program, President Obama took the public's side against the banks.
"We want our money back and we are going to get it," Obama said Thursday.
Late Wednesday, administration officials provided details of the plan rumored all week. Banks, thrifts, insurers and brokers with more than $50 billion in assets would have to pay a 15 basis point fee each year on so called net liabilities. Those would be calculated as an institution's assets minus its Tier One capital and insured deposits. The administration plans to ask Congress spread the fee over 10 years or longer, if necessary.
"This fee does target size and leverage," a senior administration official said. "Over 60% of the fees would be expected to be raised from the 10 largest financial institutions."
The official said the administration aims to recoup for taxpayers some $117 billion in expected losses on the government's bailout efforts.
About 50 firms will be covered, including 20 to 27 banking companies. About 35 of the total are expected to be U.S. companies and 10 to 15 U.S. arms of foreign firms.
Most analysts downplayed its potential effect.
Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets, conceded that the tax would over the long term hurt profitability and stock valuations. "But near term the bigger impact to earnings and stock prices will be the recovery in credit quality," he said.
"The potential bank tax is a silly idea in our opinion, but likely manageable," David George, an analyst at Robert W. Baird & Co., wrote in his note to clients. The tax "makes little sense and likely won't help lending or jobs," he added. That being said, the "expense burden may not be a disaster."
