President Obama on Thursday will call on Congress to tax the largest banks to ensure that U.S. taxpayers don't lose a penny from the federal bailout of the financial, auto and insurance industries over the past year.
The "financial crisis responsibility fee" would target major institutions. It would be levied on those that were the main contributors to the financial crisis and the most significant beneficiaries of the extraordinary actions taken by the Federal Reserve and the Treasury Department, a senior administration official said.
The measure will be part of Obama's proposed 2011 budget, which won't be released until early next month.
But the president's announcement comes as banks are set to pay out tens of billions of dollars in bonuses.
And it comes a full three years before the law that created the $700-billion U.S. Troubled Asset Relief Program (TARP) would require the president to submit a legislative proposal to Congress to recoup any money lost from the bailouts.
Obama has been asking the financial industry to take responsibility for its part in the crisis, the senior administration official said.
The president's proposal calls for the tax to be in place for a minimum of 10 years, but longer if necessary. "The fee will stay in place until every penny of TARP is repaid," the official said.
It would take effect on June 30 and is estimated to raise $90 billion U.S. over 10 years. More than 60% of the money is likely to come from the 10 largest financial institutions.
If the fee ends up raising more money than is needed to fully repay the bailout money, the additional funds would be used to help improve the U.S. fiscal position, which was worsened by the crisis, the official said.
A group representing 100 financial services companies wasted no time in blasting the proposal.
"Two-thirds of the TARP investment from banks has already been repaid with a large profit to the taxpayer," said Steve Bartlett, president of the Financial Roundtable. "This proposed tax will do nothing more than stifle economic recovery and encumber more pressing concerns, such as covering new regulatory costs."
Firms subject to the fee would have to have more than $50 billion U.S. in assets and must be a bank holding company, a thrift holding company, an insurer or a broker-dealer. Small firms and community banks would not be affected, the official said.
The administration estimates that roughly 50 companies will have to pay the fee, of which 20 to 27 would be banking institutions, according to the official. Roughly 35 would be U.S. companies and the rest would be the U.S. subsidiaries of foreign companies.
Firms could be subject to the fee even if they never took TARP funds or if they took TARP funds but repaid them. That's because all major financial institutions benefited directly and indirectly from the efforts to stabilize the financial system, the official said.
"It's just beyond the pale to suggest they were islands unto themselves and not benefiting from the extraordinary policies taken," the official said.
The administration considers the fee the minimum required of the largest financial players to meet the letter and spirit of the law, he added.
But some major beneficiaries of the financial bailout will not be subject to the fee -- namely, mortgage giants Fannie Mae and Freddie Mac and automakers GM and Chrysler.
In those cases, the administration didn't think the fee would be workable both because of the structure of those companies' assets and because of their current condition, the official said.
