Inside Financial Services

A Misguided “Responsibility Fee”

The Obama administration comes up with yet another way to torment the banks

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The White House’s assault on the banking industry just won’t stop. For the third year in a row, the Obama administration has stuck in its budget a proposed tax on large banks-a “Financial Crisis Responsibility Fee” of around 17 basis points of deposits and liabilities-that’s intended to “recoup the costs of the TARP program as well as discourage excessive risk-taking.” The White House says in its new budget that it expects the levy to bring in $61 billion.

Please. This proposed tax isn’t just outrageous, it’s ridiculous. To begin with, the banking industry has already repaid TARP-and then some. If you add up the dividends the government received on its preferred shares and the gains it earned when it sold its warrants, the bank portion of the program has netted the feds a gain of over $13 billion with more still to come. There’s nothing more to recoup! Yes, TARP overall has cost the government money. But that’s because the investments in the non-banks in the program, AIG, Chrysler, and G.M., are still money losers. But those three are non-banks! If the government is so keen to get its TARP money back, why doesn’t it dream up new ways to tax the auto industry? Yet I somehow doubt that that’s going to happen.

Then there’s this business about the fee discouraging “excessive risk-taking.” Again, ridiculous. The government already has all kinds of ways-from risk-based capital standards to its own zealous bank examiners-to ensure that banks don’t take imprudent risk. Dodd-Frank added an additional layer of tools. The new fee would be superfluous. Besides, based on what people in the White House have lately said, from President Obama on down, they’d prefer banks take more risk right now, not less. How’s a new tax on banks supposed to help?

This new tax has nothing to do with either repaying TARP or reining in excessive risk. It’s just another instance of this administration’s seeming fixation with showering benefits on groups it approves of while punishing those it does not. Are you in the solar energy business? Here are some subsidies and tax credits! Are you a unionized auto worker? No problem, we’ll save your contract by stiffing your employer’s secured creditors!

But if you’re on the wrong side of this administration, you pay-literally. The White House thinks it has figured out a way to turn the banks into its piggy bank and its whipping post all at once. That’s not just unfair to the banks, it’s bad for the economy. The administration should be doing everything it can (and it can be doing plenty, trust me, starting with telling the people at the OCC to lighten up) to encourage that creation of bank credit. But it seems to want to do the opposite. Happily, the White House’s proposed new bank tax is likely headed nowhere in Congress. But if you’re looking for evidence that this White House wants to become more banking-friendly, this new bank tax is a sign you’re likely to be disappointed. .

What do you think? Let me know!

22 Responses to “A Misguided “Responsibility Fee””

  1. Canadian content

    I find it hard to believe that someone could feel the banks need someone to fight their battles. They are responsible for the crisis the states is in right now. The banks and Bush II drank the koolaid that said people will act responsibly if left to their own devices. You were all given the chance under Bush II to do it an you all gave capitalism a bad name by trying to make as much money off the backs of the middle class and make off with it rather than reinvest. Trickle down is a myth and I hope the middle class will wake up to this fact before its too late and there is no middle class in America: only “have a lots” and “have nones. ” Banks are necessary institutions but they must serve the common good alongside the good of their shareholders. If America elects a Santorum, or Gingrich or Romney, the big banks and big oil will run roughshod over your beautiful country. Obama, whether you agree with his policies or not is your only salvation. Good luck in 2012 and know your neighbor to the north cares what happens.

  2. KeepinItReal

    There are a few posts here that tell me some folks have definitely had a second round of the Obama kool-aid. The banks, while responsible to some degree for the financial system breakdown (you can debate what percentage that is), were not the single cause of the mire we find ourselves wading out of. You know what I’d like to hear more of? Let’s examine and discuss the American citizens that acted irresponsibly during the boom years…”You make $30,000 a year? Congrats on convincing yourself you can afford a $275,000 home.” It’s easier, and more beneficial, for Obama to tell you it was those big bad banks that did this to you. You didn’t know what you were doing and I’m going to punish them for you. And instead of levying a tax against Americans (as he’s doing with the banks) for making the silliest of personal financial decisions, he bails them out! Thus reinforcing the “handout culture” that continues to be the bane of our society. It’s like Michael Douglas said in the movie The American President, “We have serious problems to solve, and we need serious people to solve them. And whatever your particular problem is, I promise you Bob Rumson (Barack Obama) is not the least bit interested in solving it. He is interested in two things, and two things only: making you afraid of it, and telling you who’s to blame for it.” Well said!

  3. KeepinItReal

    There are a few posts here that tell me some folks have definitely had a second round of the Obama kool-aid. The banks, while responsible to some degree for the financial system breakdown (you can debate what percentage that is), were not the single cause of the mire we find ourselves wading out of. You know what I’d like to hear more of? Let’s examine and discuss the American citizens that acted irresponsibly during the boom years…”You make $30,000 a year? Congrats on convincing yourself you can afford a $275,000 home.” It’s easier, and more beneficial, for Obama to tell you it was those big bad banks that did this to you. You didn’t know what you were doing and I’m going to punish them for you. And instead of levying a tax against Americans (as he’s doing with the banks) for making the silliest of personal financial decisions, he bails them out! Thus reinforcing the “handout culture” that continues to be the bane of our society. It’s like Michael Douglas said in the movie The American President, “We have serious problems to solve, and we need serious people to solve them. And whatever your particular problem is, I promise you Bob Rumson (Barack Obama) is not the least bit interested in solving it. He is interested in two things, and two things only: making you afraid of it, and telling you who’s to blame for it.” Well said!

  4. Pete

    Three years ago the Chicago Mafia rode in to town. Now with the election looming, we are seeing the shakedowns on steriods.

  5. country banker

    You forgot to mention Ally which has 17b it can’t give back . Talk about stupid risks . A tax on Fannie and Freddie might be appropriate but then it would just be passed back to taxpayers.

  6. Genesis

    LETS NEVER FORGET THE GENESIS OF THIS MESS!!!- Excerpts from NY Times-Fannie Mae Eases Credit To Aid Mortgage Lending-By STEVEN A. HOLMES-Published: September 30, 1999-In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring. Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s. ”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.” In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

  7. Duke

    If it moves, tax it. He needs to fuel his redistribution. Maybe banks should stop paying protection money to Obama. It’s not working.

  8. SGR

    Yeah, yeah, but Romney likes firing people and making money and Santorum thinks that infanticide shouldn’t be an encouraged, government subsidized practice.
    Soooo, more hope and change please! The media wouldn’t steer us wrong, and they say their boyfriend Barrack is only doing this stuff for our own good.

  9. Mark byrum

    Thisi government has a campaign policy of being Robin Hood in the modern day world. The things they want to give away for free to ignorant adults who have the power to effect the election, have to be paid for. As a famous ban robber once said when asked why he robs banks, “That’s where the money is!!!!

  10. Vegasjoe57

    It is getting much more clear: Obama is Chevez! He is using every tactic to takeover the country, using banks as his cash resource to remake America is Muslim and socialist fashion…death to capitalism; as Lenin said in Russia, “The surest way to rob the middle class is to tax them to death and inflate the value of their holdings away…” Or something to that effect!

  11. barrydemo

    Tom,
    Why don’t you send this to all the Republican candidates? I wish I knew one to forward to.

  12. S.Davis

    Banks will have to recoup this vig on the backs of savers who are being killed already by the Fed!

  13. Repp 4

    Yes, but, its such a relief as a taxpayer and citizen to know how successful all the new Dodd-Frankenstein regulations and Regulators in oversight are doing . As they did with their oversight of MF Global.

    Politicians have one and only one talent, that being to get elected. No matter how ignorant, uneducated, inexperienced and illiterate they are they find a way to lie cheat and misrepresent something to retain their office. And we, the bigger fools, just keep reelecting them.

  14. Blindspot

    Clearly a bad idea and bad policy!!! But, why at every turn, do you consistently and constantly defend the big banks prior practices of leading the country into the financial morass it found itself in from 2007- 2011? It seems most individuals responding here never turn off Rush (the convicted drug user) and his gang. What this country needs is pragmatical and practical solutions. The country certainly did not find it in the 2 terms of the prior administration that got us into 2 wars (has anyone found the WMD’s yet?) and bad tax policy. That big sucking sound you hear, was the great big surplus it inherited, along with a robust economy, being sucked right down the Chinese manufactured drain. But, all we keep hearing is the constant refrain against everything this administration does (and some of it is no doubt bad). But the country finally after 8 dreadful years to Bush II. That was unfortunate the country (the citizens) felt so disillusioned that it had to turn to an ineperienced politician. But, it was the Bush team that devised and implemented TARP. This certainly does nto excuse current bad policy. But, constant Alzeihmers (sp) lapses of what and how we got where we find ourselves unconsciounable (sp). Everyone seems to be able to yearn for the “good ole days of Reagan” forgetting he ran up the largest deficits in US history to his time ((more than all other presidents combined outside of the big one (WWII)) and actually had to reverse course and raise taxes (various taxes) about 11 times. But, what does history mean to those that have “convenient” Alzeihmers (sp) lapses and can merely live in the moment and strike out at the current administration. Certainly there are some things wrong, but where was the Republican controlled congress when there was a Republican president? As George Will (certainly no liberal) stated on separate occasions: they spent like drunken sailors, and they found out how much fun it was to spend other people’s money. That

  15. Letting you know

    You are absolutely correct, this new “fee” is ridiculous. This administration has no regard for business – period!
    They say they want to lower unemployment but the only way you can do that is for businesses to grow and create new jobs not keep adding fees. So far they have singled out banking, oil industry and health care. The same people who are unemployed will not be able to afford gas to get to a job since permitting in the Gulf is almost non-existent nor will they be able to afford the cost of health insurance which will be government mandated. Someone needs to “get a grip” in Washington and the American taxpayers need to get out and vote in November! Four more years of this administration and the country will be bankrupt.

  16. jsc173

    As these layered fees/taxes result in slimmer margins and discourage “risk taking” (a/k/a lending), there will be Congressional inquiries to try and answer complaints from businesses and consumers that banks aren’t lending.

  17. Hank Bukowski

    Isn’t the miniscule tax a small price to pay for the banks to know that they have a commitment from crony Uncle Sam to prop them up the next time they display their incompetence in risk management? The bankster executives might even sleep easier at night knowing that their ludicrous pay packages and bonuses will be backstopped for a pittance of a fee. I’m sure that Dick Fuld, Kerry Killinger, and Jimmy Caine would not complain about such a small fee if they could be back at their old overpayed jobs.

  18. JRG

    To Genisis

    This exert below from the Financial Crisis Inquiry Commission, the bipartisan congressional commission formed to determine the causes of the financial crisis cleary contradicts your position. The commision was bipartisan and Wallison was the only dissenting opinion (which is where you got a lot of your text). The AEI has been promoting the Fannie Freddie CRA position so its no surprise he would dissent. Do some research and look at the data, there is no support for the AEI position (except for Michelle Bachman and Fox News)

    From the report:

    ” GSE ( Fannie and Freddie) mortgage securities essentially maintained their value throughout the crisis and did not contribute to the significant financial firm losses that were central to the financial crisis. The GSEs participated in the expansion of subprime and other risky mortgages, but they followed rather than led Wall Street and other lenders into subprime lending.

    In 2002 Fannie and Freddie accounted for 57% of all mortgage originations. That share had fallen to 37% by 2006 a period characterized by major increases in housing prices and a decline in underwriting standards, the two primary contributors to the housing crisis

    The reality is that the majority of subprime and non prime mortgages originated in the last five years before the crash were originated in the private sector.Subprime and non prime mortgage originations inn 2005 and 2006 accounted for almost 80% of all mortgage originations a period when private mortgage originators held a 63% market share.

    Importantly it was the private sector mortgage backed securitization market developed and run by the largest banks that created the majority of the toxic securities, backed by these high risk mortgages that brought down the banking system and created the need for the banking bailout.

    The commission also found that the Community Reinvestment Act did not play a meaningful role in the crisis as only six percent of the pro

  19. Genesis

    To JRG: I don’t totally disagree with your (or the commission’s) conclusion regarding the ultimate cause of the crisis. My point is the government (regardless of party) should refrain from encourgaging or promoting a homeownership public policy (in this case, increased home ownership to low to moderate income families) without considering affordability. This path often leads to unintented consequences (as forewarned by the AIE commenter in 1999). I still believe the government played a critical role in sowing the seeds of this crises and that the private economy (including FNMA , FHLMC and the FRB, from low interest rates) simply watered, fertilized, and harvested.

  20. Anonymous

    National Utility franchises earning high single figure ROEs; selling at dividend multiples of 1.5-2X 5year treasuries.
    “All presuming real versus “”whoops”” accounting. “

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