Bankers Dismiss Bank Tax as Arbitrary
The American Bankers Association (ABA)rnreacted negatively late Monday to a part of the President’s FY 2013 Budgetrnwhich was released earlier in the day. ThernABA issued a statement through its president and CEO Frank Keating that wasrnstrongly critical of a revenue raising measure that is aimed directly at thernlarge financial institutions which ABA represents. </p
The Financial Crisis Responsibility Fee,rnwhich is expected to raise $61 billion over its first ten years, is part ofrnPresident Obama’s $3.8 trillion budget which includes $350 billion for jobrncreation and $476 billion for upgrades to the nation’s transportation system. The fee is presented as a mechanism to recoverrnfunds dispersed under the Toxic Asset Relief Program (TARP) of 2008, which “bailedrnout” many financial institutions viewed to be in danger of collapse in the wakernthe housing crash and as a way to discourage excessive risk-taking. </p
TARP allocated $700 billion to banks tornshore up their balance sheets and purchase some of the defaulted loans on theirrnbooks, primarily residential mortgages and mortgage-backed securities. Ultimately $413 billion was dispersed and asrnthe banks recovered many have completely repaid the advances. To date $318 billion has been recovered andrnthe Treasury Department estimates that the program will finally cost $68rnbillion assuming that the $45.6 billion that has been set aside for housingrninitiatives is utilized. </p
The budget document calls TARP anrnextraordinary step necessary to stem a deeper financial crisis. “The cost associated with the excessivernrisk-taking by the largest financial institutions continues to ripple throughrnthe economy,” it says, and even though many firms have repaid the Treasury, thernentire financial system benefited enormously from TARP support, “sharedrnresponsibility requires that the largest financial firms pay back the taxpayerrnfor the extraordinary support they received as well as to discourage excessivernrisk taking.” </p
The fee will be restricted to financialrnfirms with assets over $50 billion and meets the statutory requirement thatrnrequires the President to propose a way for the financial sector to pay backrntaxpayers “so that not one penny of the Government’s TARP-related debt isrnpassed on to the next generation.” Therntax is proposed to extend beyond 2022 as necessary to repay Treasury and tornoffset the cost of the President’s new mortgage refinancing program. </p
The fee was described in the budgetrndocuments only as “consistent with principles agreed to by the G-20 Leaders andrnsimilar to fees proposed by other countries.” rnHowever, earlier this month the President said the fee would be based onrnthe size of the institution and the riskiness of its activities. </p
The ABA’s Keating said in part, “Thernbanking industry strongly opposes the $61 billion bank tax included inrnPresident Obama’s budget proposal. Despite claims to the contrary, thernfacts on TARP are very clear: Taxpayers have profited $13 billion from theirrninvestments in banks through the program and Treasury predicts they will see arnlifetime positive return of more than $20 billion. Given that non-bankrnprograms are responsible for all of TARP’s losses, this would simply be anrnarbitrary tax with no regard to where losses actually occurred. “</p
Keating said the plan made for a good political sound bite but wouldrnneedlessly damage the economy by reducing credit availability and drivingrncapital away. “A 10-year tax of $61 billion means that up to $600 billionrnin loans would not be made over that same time period. Millions of smallrnbusiness loans would be in danger of not being funded, borrowing costs wouldrnlikely increase and consumers and businesses would have less creditrnavailability as the economy struggles to find its way forward.”</p
The President used the budget to restate the proposal made earlier thisrnmonth for a broad program to refinance homeowners who are underwater on theirrnmortgage but remain current on their payments. rnThe new program, similar to the HARP 2.0 program for homeowners withrnmortgages guaranteed by Freddie Mac or Fannie Mae, would be available tornhomeowners with non-GSE loans.</p
Congress has not passed a single one of President Obama’s budgets and it isrnwidely expected that the FY2013 budget will meet the same fate and that therngovernment will continue to operate on short-term interim appropriations.
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