Impose Financial Crisis Responsibility Fee
In response to widespread disruption and uncertainty in financial markets, President Bush signed the Emergency Economic Stabilization Act into law on October 3, 2008. The centerpiece of that legislation was the Troubled Asset Relief Program (TARP), which authorized the U.S. Treasury to purchase and hold up to $700 billion in assets in order to stabilize the financial system. Section 134 of that Act requires that any shortfall from the TARP program be recouped from the financial industry. As of November 2011, the Congressional Budget Office estimates the net cost of the TARP program at $34 billion.
The president proposes to assess a 0.17 percent fee on certain liabilities of all large financial firms operating in the United States. The fee would apply to all banks, thrifts, bank or thrift holding companies, securities broker-dealers, or any firm owning such an entity on or after January 14, 2010, with consolidated assets of more than $50 billion. Domestic firms would be assessed based on their total worldwide assets; foreign firms would be assessed based on the consolidated assets of their U.S. subsidiaries. The base of the fee would exclude high-quality (Tier 1) capital, along with certain liabilities required for regulatory purposes, such as FDIC-insured deposits and insurance policy reserves, and certain loans to small businesses. The fee would be deductible against the corporate income tax.
In many respects, the proposed fee acts as a “too-big-too-fail tax,” similar in spirit to deposit insurance. Whereas banks pay the FDIC a fee to guarantee depositors’ accounts against bank failure, the financial crisis responsibility fee can be seen as a form of insurance payment for the government’s anticipated (although not promised) support during times of widespread financial distress. While the fee would raise revenue and might discourage excessive risk-taking at the margin, its overall impact on financial sector risk is likely to be modest and by itself insufficient to prevent future credit bubbles, such as the subprime mortgage loans at the heart of the recent crisis.
The proposal would take effect January 1, 2014 and the Obama administration estimates that the proposal would raise $61 billion through 2022. Banks could pass at least part of the fee along to customers in the form of higher fees and/or interest rates; that would be more likely to occur for services dominated by large institutions (such as investment banking services).
White House, “Financial Crisis Responsibility Fee Fact Sheet,” January 14, 2010.