Obama Proposes Bank Fee to Recoup TARP Funds

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Jan. 14, 2010.

President Obama, citing reports of “massive profits and obscene bonuses” in the financial sector, is proposing a Financial Crisis Responsibility Fee to be imposed over a 10-year period on financial firms with consolidated assets exceeding $50 billion. The fee would be assessed at approximately 0.15 percent of covered liabilities per year.

“Our goal is not to punish Wall Street firms but rather to prevent the abuse and excess that nearly caused the collapse of many of these firms,” Obama said.

The fee, which would go into effect June 30, 2010, could be in place even longer if all of the Troubled Asset Relief Program (TARP) funds are not paid back in full, Obama said. The fee is expected to raise $90 billion over the next 10 years. The current estimated cost of TARP stands at $117 billion, down from earlier estimates of $341 billion.

Over 60 percent of revenue from the fee is expected to come from the 10 largest financial institutions. Federal Deposit Insurance Corp.-insured deposits will not be counted toward the asset total of individual firms.

Under the White House plan, which requires Congressional approval, banks and thrifts, insurance and other companies that own depository institutions and broker dealers would be covered by the fee. Neither small nor community banks would be impacted.

The fee would cover the liabilities of all relevant firms organized in the United States, including U.S. subsidiaries of foreign firms. Operations of U.S. subsidiaries of foreign firms would be consolidated with respect to the $50 billion threshold and administration of the fee. For those firms headquartered in the United States, the fee would cover all liabilities globally.

Senate Banking, Housing and Urban Affairs Committee Chairman Chris Dodd, D-Conn., said he supports the proposal. “The taxpayers wrote the check that saved these firms. If it wasn’t for the American taxpayers, they would just be empty offices now.  It’s time for Wall Street to return the favor.” Dodd added that his committee may also consider additional means to limit executive compensation as part of its financial regulation overhaul.

House Financial Services Committee Chairman Barney Frank, D-Mass., said the proposal complies fully with the taxpayer protection language of the original TARP bill. “His decision to do this before 2013 is a good one because there is no need to wait,” Frank said. He added that he is confident the House Ways and Means Committee will act on the proposal soon.