WASHINGTON - The Obama administration is considering levying a fee on banks, which would recoup taxpayer funds spent to rescue the financial industry and auto companies, according to administration officials.
The proposal is still under discussion and no final decision has been made as to what form it might take. The concept is expected to be included in next month's budget, even without specific details, and as such could also be presented as a way to pay down the U.S.'s large deficit.
One option discussed involves placing a fee on a bank's liabilities, a number that theoretically represents the amount of risk a bank takes on, according to officials familiar with the matter. Another would be putting the fee on banks' profits, as an approximation of their success and ability to absorb such a fee, these people said.
The fee could be designed to avoid hitting certain parts of the financial industry, such as community banks, although no decision has been made on that front.
The administration has been talking for months about recouping government funds likely lost through the $700 billion Troubled Asset Relief Program. It hasn't publicly articulated how that would work. The fee, if it comes to fruition, could hit big banks that have already repaid their TARP funds, with interest, to compensate for losses in other areas, such as loans to Detroit's auto makers and funds used to prop up American International Group Inc.
Wall Street banks won't be happy with such a scenario, but will have limited scope to make that argument in public, especially with the unemployment rate stubbornly high at 10%. Big banks, having largely regained their footing, are set to pay out large bonuses this year. After a blockbuster year, revenue has rebounded to pre-crisis levels, and 2009 compensation is on pace to approach or surpass the record payouts of 2007.
Public ire about the bonuses remains strong and Congress has struggled to develop a way to respond that tamps rather than stokes that anger. Last year, lawmakers had to back down from proposals to tax bonuses following the bonus furor concerning American International Group.
House Financial Services Committee Chairman Barney Frank (D, Mass.) said legislation that created TARP mandated repayment by 2013. That date was chosen to spill into the next presidential administration, and to try to take some of the politics out of repayment, he said. But since the program is winding down faster than expected, a levy now would be appropriate.
"Given the mood of the country," he said, "it is essential that we do it. That was part of the deal."
He would not get into specifics about the design of such a levy. He said it would be unfair to make banks repay money given to auto companies, which could end up making up the lion's share of the lost bailout fund. It would be "premature" to force repayment from General Motors and Chrysler, he said, but some repayment mechanism for the auto companies should be considered. A bank fee would require Congressional approval.
Some in Congress have suggested taxing a wide range of financial transactions as one way taxpayers might benefit from Wall Street's resurgence. The Treasury Department opposes that idea, which would require international coordination to be effective.
One challenge faced by the administration is structuring a fee that doesn't simply get passed on to the bank's customers or other investors.
There will also be enormous pressure from community banks to be excluded. That group has long argued it didn't cause the financial crisis and that most of its members didn't take TARP cash.
And although revenue at some big banks has returned to pre-crisis levels, the industry more broadly remains troubled, with many more banks expected to fail. The White House will have to consider how to charge fees at many struggling banks that really can't afford to take this money out of their capital. News of a possible bank fee was first reported by Politico.