WASHINGTON — Backlash over $165 million in bonuses paid to executives at American International Group continued its ripple effect throughout the banking industry Thursday with the House poised to pass legislation that would recapture most bonuses paid to bankers whose companies received government assistance.
The legislation would target firms who received $5 billion or more under the Troubled Asset Relief Program by taxing bonuses at a rate of 90%.
The legislation, introduced late Wednesday, is expected to pass the House as lawmakers scramble to respond to public outrage over AIG. The Senate is on track to follow suit with a similar bill by next week.
The legislation goes well beyond top executives and applies to individual employees whose total family income exceeds $250,000 adjusted gross income per year. It affects bonuses received after Jan. 1, 2009.
Banking industry representatives said Thursday the proliferation of bills attempting to add retroactive conditions to Tarp money will encourage many bankers to return such funds quickly.
"We recognize there is a lot of outrage at AIG," said Floyd Stoner the head lobbyist for the American Bankers Association. "We are concerned that with this legislation moving so quickly the impact has not been carefully considered. It does not recognize there were healthy institutions that were urged to participate in the capital injection program in order to increase lending. The interest on the part of healthy firms in repaying government funding is enormous."
Financial firms that have received $5 billion or more under Tarp include: Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo Co., Goldman Sachs, Morgan Stanley, PNC Financial Corp., U.S. Bancorp and GMAC.
The move comes a day after the House Judiciary Committee rushed to pass a bill that would empower the U.S. attorney general with special powers to recoup bonuses at companies that received $10 billion and more under Tarp.
That bill is due to come before the House next week. House Financial Services is also fast-tracking a bill that would give regulators power to unwind failed, systemically important non-banks.
Speaker Nancy Pelosi said in a statement issued late Wednesday that Congress is forced to protect taxpayers from corporate mistakes.
"We must also protect the American taxpayer from executives who would use their companies' second chances as opportunities for private gain," said "Because they could not use sound judgment in the use of taxpayer funds, these AIG executives will pay the Treasury in the form of this tax. I urge all my colleagues to vote in favor of this legislation and in favor of recovering taxpayer dollars and protecting Americans from the continued poor judgment of some of America's largest companies."
Ways and Means Committee Chairman Charles B. Rangel said Congress was given no choice in light of AIG.
"When you weigh the harm that AIG and other bad actors have done to the system, our economy, and American families, with the concerns regarding the precedent of using the tax code, there is no question this legislation is the best decision we can make," said the New York Democrat.
"Executives were motivated by greed rather than preserving a system that America and the world depend upon...They caused irreparable harm to our financial system Make no mistake about it, we will not tolerate these abuses. We will send the clearest of signals, a solid red light, to say 'stop, do not go there.' "