Bankers Dismiss Bank Tax as Arbitrary

The American Bankers Association (ABA)
reacted negatively late Monday to a part of the President’s FY 2013 Budget
which was released earlier in the day.  The
ABA issued a statement through its president and CEO Frank Keating that was
strongly critical of a revenue raising measure that is aimed directly at the
large financial institutions which ABA represents. 

The Financial Crisis Responsibility Fee,
which is expected to raise $61 billion over its first ten years, is part of
President Obama’s $3.8 trillion budget which includes $350 billion for job
creation and $476 billion for upgrades to the nation’s transportation system.  The fee is presented as a mechanism to recover
funds dispersed under the Toxic Asset Relief Program (TARP) of 2008, which “bailed
out” many financial institutions viewed to be in danger of collapse in the wake
the housing crash and as a way to discourage excessive risk-taking. 

TARP allocated $700 billion to banks to
shore up their balance sheets and purchase some of the defaulted loans on their
books, primarily residential mortgages and mortgage-backed securities.  Ultimately $413 billion was dispersed and as
the banks recovered many have completely repaid the advances.  To date $318 billion has been recovered and
the Treasury Department estimates that the program will finally cost $68
billion assuming that the $45.6 billion that has been set aside for housing
initiatives is utilized. 

The budget document calls TARP an
extraordinary step necessary to stem a deeper financial crisis.  “The cost associated with the excessive
risk-taking by the largest financial institutions continues to ripple through
the economy,” it says, and even though many firms have repaid the Treasury, the
entire financial system benefited enormously from TARP support, “shared
responsibility requires that the largest financial firms pay back the taxpayer
for the extraordinary support they received as well as to discourage excessive
risk taking.” 

The fee will be restricted to financial
firms with assets over $50 billion and meets the statutory requirement that
requires the President to propose a way for the financial sector to pay back
taxpayers “so that not one penny of the Government’s TARP-related debt is
passed on to the next generation.”  The
tax is proposed to extend beyond 2022 as necessary to repay Treasury and to
offset the cost of the President’s new mortgage refinancing program. 

The fee was described in the budget
documents only as “consistent with principles agreed to by the G-20 Leaders and
similar to fees proposed by other countries.” 
However, earlier this month the President said the fee would be based on
the size of the institution and the riskiness of its activities.

The ABA’s Keating said in part, “The
banking industry strongly opposes the $61 billion bank tax included in
President Obama’s budget proposal.  Despite claims to the contrary, the
facts on TARP are very clear: Taxpayers have profited $13 billion from their
investments in banks through the program and Treasury predicts they will see a
lifetime positive return of more than $20 billion.  Given that non-bank
programs are responsible for all of TARP’s losses, this would simply be an
arbitrary tax with no regard to where losses actually occurred. “

Keating said the plan made for a good political sound bite but would
needlessly damage the economy by reducing credit availability and driving
capital away.  “A 10-year tax of $61 billion means that up to $600 billion
in loans would not be made over that same time period.  Millions of small
business loans would be in danger of not being funded, borrowing costs would
likely increase and consumers and businesses would have less credit
availability as the economy struggles to find its way forward.”

The President used the budget to restate the proposal made earlier this
month for a broad program to refinance homeowners who are underwater on their
mortgage but remain current on their payments. 
The new program, similar to the HARP 2.0 program for homeowners with
mortgages guaranteed by Freddie Mac or Fannie Mae, would be available to
homeowners with non-GSE loans.

Congress has not passed a single one of President Obama’s budgets and it is
widely expected that the FY2013 budget will meet the same fate and that the
government will continue to operate on short-term interim appropriations.

…(read more)

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