Obama proposes new "Big Bank Fee"

You have heard of BFF, well this is a BBF and it does not look like the president is going to be best friends forever with some of the nation's top bankers. President Obama has proposed a new Financial Crisis Responsibility Fee to cover the cost of TARP bailouts in 2009. 10 key points the Treasury Department has released about the proposed fee.

1. Require the Financial Sector to Pay Back For the Extraordinary Benefits Received: Many of the largest financial firms contributed to the financial crisis through the risks they took, and all of the largest firms benefitted enormously from the extraordinary actions taken to stabilize the financial system.

2. Responsibility Fee Would Remain in Place for 10 Years or Longer if Necessary to Fully Pay Back TARP: The fee – which would go into effect on June 30, 2010 – would last at least 10 years. If the costs have not been recouped after 10 years, the fee would remain in place until they are paid back in full. In addition, the Treasury Department would be asked to report after five years on the effectiveness of the fee as well as its progress in repaying projected TARP losses.

3. Raise Up to $117 Billion to Repay Projected Cost of TARP: While the Administration projected a cost of $341 billion as recently as August, it now estimates, under very conservative assumptions, that the cost will be $117 billion--reflecting the $224 billion reduction in the expected cost to the deficit. The proposed fee is expected to raise $117 billion over about 12 years, and $90 billion over the next 10 years.

4. President Obama is Moving up the Commitment to Provide a Plan for Taxpayer Repayment Three Years Earlier Than Required: The EESA statute that created the TARP requires that by 2013 the President put forward a plan "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."

5. Apply to the Largest and Most Highly Levered Firms: The fee would be levied on the debts of financial firms with more than $50 billion in consolidated assets, providing a deterrent against excessive leverage for the largest financial firms. By levying a fee on the liabilities of the largest firms – excluding FDIC-assessed deposits and insurance policy reserves, the Financial Crisis Responsibility Fee will place its heaviest burden on the largest firms that have taken on the most debt. Over sixty percent of revenues will most likely be paid by the 10 largest financial institutions.

6. Applied Only to Firms with More Than $50 Billion in Consolidated Assets: The fee would only be applied to firms with more than $50 billion in consolidated assets. No small or community bank would be covered by the fee.

7. Fee Would Cover Banks and Thrifts, Insurance and Other Companies That Own Insured Depository Institutions, and Broker-Dealers: Covered institutions would include firms that were insured depository institutions, bank holding companies, thrift holding companies, insurance or other companies that owned insured depository institutions, or securities broker-dealers as of January 14, 2010, or that become one of these types of firms after January 14, 2010. These institutions were recipients and/or indirect beneficiaries of aid provided through the TARP, the Temporary Liquidity Guarantee Program, and other programs that provided emergency assistance to limit the impact of the financial crisis.

8. Both Domestic Firms and U.S. Subsidiaries of Foreign Firms Subject to the Fee: The fee would cover the liabilities of all firms in these categories organized in the U.S. – including U.S. subsidiaries of foreign firms. Operations of U.S. subsidiaries of foreign firms in the areas cited above would be consolidated for the purposes of the $50 billion threshold and administration of the fee. For those firms headquartered in the U.S., the fee would cover all liabilities globally.

9. Exempting FDIC-Assessed Deposits and Insurance Policy Reserves As Appropriate: The fee will exempt FDIC-assessed deposits because they are stable sources of funding covered by deposit insurance and already subject to assessment. Similarly, the base for the fee would be appropriately reduced based on insurance policy reserves. (Covered Liabilities = Assets - Tier 1 capital - FDIC-assessed deposits (and/or insurance policy reserves)

10. How the Fee Would Be Assessed: Covered liabilities would be reported by regulators, but the fee would be collected by the IRS and revenues would be contributed to the general fund to reduce the deficit.