The Obama Administration plans to levy fees on large banks for the next ten years or until the money invested in the financial system through the TARP is entirely repaid. Several news sources say that the total amount that the program would collect over the period will be close to $90 billion.
Ironically, the banks faced with the largest fees are those that have repaid TARP money with interest. The government has also made money on the sales of warrants issued by these firms as part of the bailout.
The theory behind the Administration’s plan appears to be the fees will be forced on the firm’s with the greatest ability to pay them. That means that AIG (AIG), GM, and Chrysler could avoid the “tax” completely.
MarketWatch reports that “The special assessment would apply to about 50 companies with assets more than $50 billion — including banks, bank holding companies, thrifts, insurance companies, and broker-dealers. The fee would not apply to hedge funds or mutual funds.”
It has already been pointed out often, but is worth repeating that the fees will hurt bank shareholders by reducing earnings. It may also backfire to the extent that banks will cut lending to decrease their risk of write downs while they use capital that might go to loans to fund their payments to the government instead.
The fees show that the Administration does not care if its plan to recoup the taxpayer’s TARP investment is applied unevenly and will work as a sort of “revenge tax” against firms that continue to pay huge bonuses, largely from pools of rising earnings.
It is a regressive approach that in most cases rewards success because of the perception that the pursuit of that success is what brought the credit system to its knees.
Douglas A. McIntyre