The Obama administration will “likely” propose a new fee or tax on banks in the federal budget to be tabled in February, several news sources reported Monday.
The fee, which will be music to the ears of critics who opposed Washington’s $700-billion taxpayer-funded bailout of major investment banks and insurers in 2008, reportedly will be an attempt to recover some of that bailout cash, and will be part of the administration’s strategy to discourage risky lending.
While the White House has been vocal in recent months about finding ways to temper the banks’ often destructive instincts, it has been opposed to many concrete proposals for reigning in the banks.
As Politico reported when it first broke news of the bank fee Monday morning, the White House is critical of the approaches being considered in other countries. The European Union has come out in favor of a global transactions tax. (EU officials have argued it has to be implemented globally or multinational banks will simply move operations to where the tax doesn’t exist.)
European leaders have been far more aggressive than the Obama administration in efforts to rein in excessive spending and risky lending by banks. Both British Prime Minister Gordon Brown and French President Nicolas Sarkozy have implemented temporary taxes on bank bonuses. There is no indication that Washington plans to follow suit.
As the New York Times reports, the Obama administration is opposed to a global financial transaction tax because it “would simply be passed on to customers,” and it opposes the bank bonus tax because it “could be easily circumvented.”
In October, 2008 Congress — with the support of both presidential candidates, John McCain and Barack Obama — signed into law the TARP bailout, which devoted $700 billion of taxpayers’ money to bailing out ailing Wall Street institutions.
Since then, many of the firms have begun paying back the money, and the US Treasury Department now estimates that taxpayers will be on the hook for some $120 billion when all is said and done.
Another method that can — and sometimes is — used to temper banks’ worst instincts is the Federal Deposit Insurance Corporation, which provides insurance on bank deposits and can discourage risky lending by increasing the premiums it charges to banks.
The FDIC did just that, temporarily, last February when it filled part of a $65-billion hole in its funds by charging a temporary fee to banks totalling $27 billion. That hole in its budget was caused by a series of bank collapses in 2008 and 2009.