Obama Bank Fee to Hit 50 Biggest U.S. Financial Firms
By Julianna Goldman
Bloomberg
Jan. 14 (Bloomberg) -- As many as 50 financial firms with assets greater than $50 billion each would be charged a levy President Barack Obama will announce today to help recoup taxpayer-bailout money and trim the federal budget deficit.
“My commitment is to recover every single dime the American people are owed,” Obama said in a statement released this morning. “My determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at the very firms who owe their continued existence to the American people.”
The levy would be based on bank liabilities and be imposed starting June 30 on companies such as Citigroup Inc., American International Group Inc. and Bank of America Corp. The administration estimates it will raise $90 billion over a minimum of 10 years, said an administration official, who briefed reporters on the condition of anonymity.
White House or Treasury officials contacted most of the companies affected, according to a senior administration official. The plan must be approved by Congress.
Obama plans to outline the proposal this morning at the White House and a more detailed plan will be included in the budget message he is due to send Congress next month. The announcement comes as public anger is rising over the taxpayer bailouts of the financial and auto industries, Wall Street bonuses and the deficit, which hit $1.4 trillion last year.
‘Have Rebounded’
White House senior adviser Valerie Jarrett said today that the president is trying to recoup money given to the banks through the Troubled Asset Relief Program (TARP) now “because it’s clear that the financial institutions have rebounded.”
“He thinks it’s fair, he thinks its equitable, he thinks it puts the responsibility on the financial institutions that were principally responsible for taking the risk that created the financial crisis and also the institutions that primarily benefited from the taxpayer loans,” Jarrett told Bloomberg TV.
Even before it was formally released, the proposed Financial Crisis Responsibility Fee drew criticism from the industry.
“Using tax policy to punish people is a bad idea,” JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, 53, said after testifying yesterday at a hearing of the Financial Crisis Inquiry Commission in Washington. “All businesses tend to pass their costs on to customers.”
The fee targets the country’s biggest financial institutions and aims to recoup losses from TARP, which the Treasury Department estimates at $117 billion now with the possibility of shrinking, the administration official said.
Aid Recipients
Companies including JPMorgan, Citigroup Inc., Wells Fargo & Co., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley were among the biggest beneficiaries of the government’s initial purchases in October 2008 of preferred stock and warrants with money from the $700 billion TARP fund. All but Citigroup have repaid the money, according to a Treasury Department report released yesterday.
Covered institutions include bank holding companies, thrift holding companies, insured depositories, as well as insurance companies with such entities and broker-dealers. More broadly, the official said that firms covered under the Federal Deposit Insurance Corp.’s. Temporary Liquidity Guarantee Program would be subject to the fee.
The program was established to back senior unsecured bank debt and boost liquidity in the banking system. Participating companies also included General Electric Co. and its finance unit, GE Capital.
Some companies that didn’t receive TARP funds would face the fee, the official said. The administration is using the argument that that every major financial firm in the U.S. is a beneficiary of government steps to bolster the industry.
‘Limit Economic Recovery’
“The tax will penalize the firms who repaid TARP with interest and those who never even accepted it to begin with,” said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, which represents large banks. “It will decrease the availability of loans and limit economic recovery.”
The fee would be approximately 15 basis points, or 0.15 of a percentage point, of covered liabilities, or total assets minus Tier 1 capital -- common stock, disclosed reserves, retained earnings -- and excluding FDIC-insured deposits for banks or insurance policy reserves for insurance companies, the official said.
Deposits covered by the FDIC and insurance policy reserves are being exempted to avoid placing a double fee on institutions, the official said.
U.S. Automakers
General Motors Co. and Chrysler Group LLC, which also got government aid, would be exempt, as would smaller banks. As such, the fee will leave the country’s largest financial firms, even those that have paid back their assistance, to cover losses from the government’s bailout of U.S. automakers.
The levy also won’t be assessed on Fannie Mae and Freddie Mac, the government-supported companies seized by regulators in 2008. The official said the administration concluded charging Fannie and Freddie the fee wouldn’t be in taxpayers’ interest.
35 U.S. Companies
The fee will apply to roughly 35 U.S. companies and up to 15 U.S. subsidiaries of foreign companies, the official said.
While additional details are still being worked out, the fee is expected to vary by year, growing slightly over the 10- year period, the official said. The administration plans to consult with members of Congress and outside experts before it is released in the budget.
The official also said that Congress would be able to amend the fee in the future based on its own determinations.
The administration expects that most institutions won’t pass on the cost to consumers because they would be at a competitive disadvantage with banks that aren’t subject to the fee, the official said.
While there’s a high probability for the proposal’s passage in the House, its fate in the U.S. Senate is less certain, according to FBR Capital Markets analysts led by Paul Miller.
“Our sources on Capitol Hill indicate that the TARP tax has a very low probability of passage in the Senate, as nearly all Republicans and a sufficient number of Democrats would likely vote against the measure,” the analysts, who are based in Arlington, Virginia, wrote in a note to investors today. “The proposal has a higher probability of passage in the more populist-driven House.”
The plan won support from key House Democrats even before details were released. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said he was in favor of such a fee.
Incentive to Lend
Frank said Republicans will suffer if they echo warnings from the banks that taxes or fees would hurt banking activity.
“The answer is yes, good,” he said. “If they were not able to make so much on overdraft fees, and credit cards and derivatives and some of these manipulations, then they might have more incentive to lend.”
Michigan Representative David Camp, the top Republican on the Ways and Means Committee, said while he and other Republicans find bonuses being paid by banks that got bailouts “irresponsible” and “outrageous,” they are concerned that taxing banks will hurt lending, and thus job creation.
Still, he said that with lawmakers up for re-election in November, voter anger at banks will be tough to ignore.
“It’s going to be a tough bill politically to oppose,” he said.
To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net
Source: Bloomberg
Comments
Bank taxes
It's such a piddling amount - $90 billion over ten years. As of early yesterday, it was expected to be $127 billion. The damage these financial institutions did runs into many trillions.
All the "Chicken Little" arguments against are self-serving for the banks.