President Obama this morning will propose Congress impose a “financial crisis responsibility fee” on large financial institutions that received government assistance, either capital from the Troubled Asset Relief Program or debt guaranteed by Temporary Liquidity Guarantee Program.
That’s broader than had been expected, and the fee – equal to 15 basis points of a company’s net liabilities – will apply to banks, thrifts, insurers and brokers with more than $50 billion in assets, a senior administration official said on a conference call Wednesday evening.
“This fee does target size and leverage,” the 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.
“The banks that are in question were significantly responsible for an enormous degree for the reckless risk-taking that was born throughout the entire economy,” the official said. “That extraordinary benefit was done to help our economy as a whole, not to benefit a part.”
The President will include the fee in his 2011 budget to be sent to Congress in February. The only company the administration specifically cited as being subject to the fee is American International Group, the giant insurer that is the largest recipient of government aid. The administration official also said the auto companies and the government-sponsored-enterprises will not have to pay it.
“In the current structure, in the current situation with Fannie and Freddie I do not think it would make sense from a taxpayer perspective to put this fee on them now… those scenarios and situations could change over the life of this fee.”
The 15-basis point fee will be levied against a firm’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. It expects within the 10 years to collect $90 billion, which the official said could be sufficient to cover Tarp losses.
The 2008 Emergency Economic Stabilization Act that created the $700 billion bailout called for the administration to recoup any losses from the rescue effort from the financial industry by 2013.
The banking industry opposes the plan, arguing that no large banks are responsible for Tarp program losses. In fact, the large banks that took Tarp funds have returned them at a profit to the Treasury. So far 64 banks have repaid $165 billion in Tarp capital.
The senior administration official dismissed the idea that banks should be exempt from the fee.
“It is our belief that major financial institutions were both significant causes of the historic financial crisis that has inflicted widespread harm on the economy and then have been beneficiaries of extraordinary efforts to stabilize the economy,” the official said. “I don’t think it would be wise for them to suggest that living up to the letter of the law of EESA is an unfair burden on them. If you try to value the benefit they received… that this is essentially the least that they could do.”
He also said it was unlikely banks would pass this cost along to consumers because it would put them at a competitive disadvantage.
“If your competitors are not bearing the fee, smaller banks, community banks, medium banks, if you choose to pass it on you are going to be raising your prices to your customers when your competitors are not,” the official said. “That provides a pretty good disincentive.”
The official repeatedly cited the large bonuses banks are paying employees, and said it was “offensive” for bankers to complain about this tax while handing out “outlandish” bonuses.
But the industry sees the move as political.
“It’s a revenue raiser, and there is a political dynamic here about figuring out a way to attack Wall Street and to respond to public anger to Wall Street,” Ed Yingling, president and CEO of the American Bankers Association, said on Wednesday.