WASHINGTON — Fairness is hard to measure, but that was a key issue being asked Wednesday about the Obama administration's plan to recoup losses on the government's rescue efforts by charging large financial institutions a fee.

Is it fair?

Proponents say yes, arguing that financial institutions helped create the crisis and are profitable now only because they received help from the government. Opponents say no, claiming the companies being targeted are not responsible for the losses, that the fee is premature and, worse, it is perverse policy that will retard the economic recovery and drive up consumer costs.

"Using tax policy to punish people is a bad idea," JPMorgan Chase & Co. Chief Executive Jamie Dimon said Wednesday, after testimony before a panel investigating causes of the financial crisis. "All businesses tend to pass their costs on to their customers."

Today the administration is expected to detail its plan to impose a fee on the largest 20 to 25 financial institutions over 10 years. It would be levied against a company's liabilities, or its assets minus equity and insured deposits, with the goal of recouping $120 billion in anticipated losses from Troubled Asset Relief Program funds. But those rescue funds went beyond commercial and investment banks — to automakers, American International Group Inc. and a government-sponsored mortgage modification program.

The proposal is to be submitted to Congress as part of the Obama administration's budget, due out in February.

Ed Yingling, the president and CEO of the American Bankers Association, said the large banks that received Tarp funding have repaid the government in full.

"There are no losses, zero, with respect to the banking industry," he said. "Taxpayers will make a profit on all of the investments in the banking industry."

Banks should not have to pay for "losses on two auto companies and an insurance company and the mortgage program," Yingling said.

But supporters said it is appropriate to tax banks now because they would not be making money today had they not been bailed out in late 2008 and early 2009.

"The argument can be made very forcefully that these large institutions benefited very favorably by the Tarp program and simply paying back what they borrowed wouldn't be sufficient," said Bill Longbrake, executive in residence at the Robert H. Smith School of Business at the University of Maryland and a former vice chairman of Washington Mutual Inc. "Their profits have actually benefited through the government's intervention through the Tarp program."

Doug Elliott, an economic studies fellow at the Brookings Institution, agreed.

"AIG and the auto companies can't afford to pay the money back," he said. "We are going to lose money on them anyway. If we tax them, they are going to lose more money and we are going to get even less money back."

Republicans lawmakers bashed the proposal earlier this week, but House Financial Services Chairman Barney Frank championed it on Wednesday.

"It's entirely fair to tax the financial institutions," Frank said at a news conference. "The financial institutions collectively, in particular the larger ones, caused problems by their errors."

The industry was caught off guard when news of the bank tax broke this week.

The 2008 Tarp law requires the administration recover from the financial industry any losses the program sustains, but not until 2013. Industry observers argue that the administration is moving to recoup funds now in response to populist anger over the return of big pay packages on Wall Street.

"This is payback for executive compensation," said Oliver Ireland, a partner at Morrison & Foerster LLP. "I think they are essentially trying to blame the banks for what were in some cases regulatory failures beyond the banks' control."

Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, said it is too early for the government to collect.

"Politics has overtaken economics," Talbott said. "The tax is premature given we don't know the profit and loss of Tarp and the tax contemplated by the law isn't triggered for four years."

Sources split Wednesday over the tax's likely impact on lending.

Gary Townsend, the CEO of Hill-Townsend Capital LLC, said the administration is trying to "talk out of both sides of their mouth" by urging banks to lend more while levying a new tax that could hinder their ability to lend.

Obama "is running with the tide and all of the public outcry with regard to bankers," he said. "This is politics at its worst."

But while Tom Mitchell, a senior analyst with Miller Tabak & Co., agreed that the tax is "political grandstanding to punish the banks," he does not suspect it would crimp lending.

"American banks have proved that you can give them all the money in the world and they won't give it to anybody," Mitchell said. "They have been flush with cash for a long time, for at least a year, and they haven't done anything with it," he said. "I think this will have no impact on whether they loan money or not."

Some sources pointed beyond the immediate debate to the broader picture.

Ernest Patrikis, partner in the bank and insurance practice at White & Case LLP in New York, said he is focused on the collective impact of government initiatives.

"I'm not concerned about any one proposal that we see. I'm much more concerned about the cumulative impact on the commercial banking system," said Patrikis, a former attorney for the Federal Reserve Bank of New York and, later, AIG. "The legislation that passed the House would have a resolution fund, so assessments would be made to do that funding. The FDIC would have assessments related to compensation. This would be another one, a tax or a fee or an assessment. Higher capital adequacy standards [are coming].

"What will be the cumulative effect on the banking system, and will it foster the shadow banking system over the regulated commercial banking system?"

Larry White, a professor at New York University's Stern School of Business and a former regulator, said the tax is likely to encourage large institutions to shrink and to shift more of their funding to insured deposits.

"The fact that it [the tax] is mostly going to hit the big guys will be a discouragement to being big," he said. "It will cause them to shrink … they will substitute insured deposits for these other liabilities."

Lawrence G. Baxter, a Duke Law School professor, made a related point.

Even if the cost is passed on to bank consumers, "that has the effect of having consumers think twice about authorizing transactions," and "maybe that's not a bad thing."

Baxter also suggested the banking industry, in claiming it will simply pass the tax on to consumers, is not being very savvy. "Banks don't read the political climate very well," he said.

"All around the world now, there is a consistency in political dynamics of being seen to make the banks pay in some way for the cost of this disaster. I think that's the overwhelming imperative. Throughout Europe and certainly across America, this is politics that plays very well, and perhaps it should."

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