President Barack Obama plans to announce a new fee Thursday on the country's biggest financial firms to recover up to $120 billion in taxpayers' money used to prop up corporations during the economic crisis, a senior administration official said.
President Barack Obama plans to announce a new fee Thursday on the country's biggest financial firms to recover up to $120 billion in taxpayers' money used to prop up corporations during the economic crisis, a senior administration official said.
In proposing a multiyear levy on big banks, Obama is targeting an industry whose political deafness has vexed his administration. Banks once threatened by the undertow of a Wall Street collapse are now posting profits and proposing robust bonuses for their executives.
The official who described the administration's plans was not authorized to discuss the fee publicly and spoke only on condition of anonymity.
The $120 billion recovery goal is the most that administration officials expect to lose from the government's $700 billion Troubled Asset Relief Program that bailed out banks, automakers and other financial firms.
Most of the TARP losses are expected to come from auto industry rescues and the bailout of insurance conglomerate American International Group Inc.
Details of the fee are expected to be spelled out when the president releases his 2011 budget next month. Congress would have to approve any fee plan.
The proposed levy could put Obama on the popular side of public opinion that is decidedly against Wall Street and angry over shortfalls in a $700 billion bank bailout fund.
Obama's announcement would come one day after the nation's top bankers testify before the congressionally created Financial Crisis Inquiry Commission. The hearings come at an ultra-sensitive time for the banking industry. In addition to Obama's fee proposal, Congress is writing a full-scale overhaul of financial regulations.
The bankers' demeanor before the commission, the tone of the commission's questions and the continuing inquiry could affect public perceptions and influence how lawmakers and the White House deal with the industry.
The administration official said Obama's plan has been in the works since August and would seek modifications to the law that sent billions of dollars in bailout money in 2008 and 2009 to a flailing Wall Street that was approaching collapse.
The idea received an early boost from Speaker Nancy Pelosi, the top Democrat in the House, where there have been calls for a hefty tax on bank bonuses.
"While we have not seen any specific language from the administration, Congress will certainly examine any serious proposals to lower the deficit and recoup even more of the TARP funds for the taxpayers," said Nadeam Elshami, a spokesman for Pelosi, D-Calif.
The 2008 law that created the Troubled Asset Relief Program requires the president to seek a way to recoup unrecovered TARP money from financial institutions, but five years after the law was enacted. It does not specify how the money should be recovered.
On Tuesday, the official said Obama's economic team decided it was necessary to recover taxpayer losses more quickly than the law required.
The administration's plan raises a series of questions.
Among them: How will the fee be assessed? Administration officials already have ruled out a fee on financial transactions. Also, will banks be required to pay for the billions of dollars in assistance the federal government gave General Motors, Chrysler LLC and AIG?
An industry official said consideration of a levy now would be premature.
"Current law doesn't trigger this tax proposal for another four years," said Scott Talbott, chief lobbyist for the Financial Services Roundtable, an industry group for some of the largest financial firms.
"We look forward to seeing the details of the complexity of the formula, of who it's applied to and what the assessment is based on and when it is applied," he said.
Banks have been repaying their infusions, in part to get out from under compensation limits imposed on the bailout recipients. Banks have also paid dividends from the government help.
According to the crisis-driven 2008 law that created the bailout fund, the status of TARP must be assessed by late 2013, five years after it passed. "In any case where there is a shortfall," the statute says, "the president shall submit a legislative proposal that recoups from the financial industry an amount equal to the shortfall in order to ensure that the Troubled Asset Relief Program does not add to the deficit or national debt."
Obama has been strident in his criticism of bankers, calling them "fat cats" last month in an interview that aired on the eve of their visit to the White House. With public anger over the bailout still strong, Obama has embraced populist rhetoric in an effort to shame bank executives into paying back the government more quickly and their executives less lavishly.
Funds collected from such a levy would go to pay down the $1.4 trillion deficit amid the Obama-backed stimulus package and aid to Detroit's automakers.
Washington spent about $245 billion to help banks in the Troubled Asset Relief Program, much less than President George W. Bush's Treasury Department secured to keep financial firms afloat.
So far, $162 billion of that has been repaid, including $20 billion each from Citigroup and Bank of America under a special targeted program.
