Obama proposes ‘big bank fee’
US president says levy on banks with $50bn in assets meant to recover taxpayer money.
Full details of the fee proposal will not be laid out until Obama delivers his budget for fiscal 2011 in early February, but the aim of the plan is to recoup losses from the $700bn rescue programme of US banks called the Troubled Asset Relief Programme (Tarp).
It calls for a levy of 0.15 of a percentage point on the balance sheets of companies with assets exceeding $50bn.
The Obama administration expects to raise $90bn from 50 financial institutions over the first 10 years, and thinks this will ultimately cover all losses from Tarp, although at the moment these losses are being projected at $117bn.
Bank analysts at Credit Suisse said the impact would be felt heavily by Wall Street powerhouses Goldman Sachs Group and Morgan Stanley.
‘Preventing excess’
Obama said the goal of the bank fee is “not to punish Wall Street firms but rather to prevent the abuse and excess that nearly caused the collapse of many of these firms and the financial system itself”.
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“My determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at some of the very firms who owe their continued existence to the American people” Barack Obama, |
But he made it clear where he placed the blame for the country’s ongoing economic woes, with the initiative being called the “Financial Crisis Responsibility Fee”.
“Firms took reckless risks in pursuit of short-term profits and soaring bonuses, triggering a financial crisis that nearly pulled the economy into a second Great Depression,” the president said.
Lawrence Summers, Obama’s senior economic adviser, told reporters that after ruling out ideas such as a levy on bonuses or financial transactions, the White House settled on the fee based on a measure of the size of the firms’ balance sheets.
This, he said, would provide “favourable incentive effects that discourage firms from becoming too big and taking on too much leverage”.
The proposal will require congressional approval and comes as congress is weighing sweeping financial regulatory reforms in the face of stiff industry opposition.
Democrats in congress signalled they would quickly take up the legislation.
But some members of the opposition Republican party, criticised the bank fee as a tax that would be passed on to small businesses and Americans with savings accounts.
The Obama administration’s proposal comes as financial firms geared up to announce huge bonuses for senior executives, a move sure to inflame the public as Americans face 10 per cent unemployment and deep economic misery.
It also comes two days after Wall Street bosses were questioned by a US commission on Capitol Hill over their role in the economic crisis.
‘Mistakes made’
During the hearing bankers admitted mistakes that led to the global financial crisis.
Brian Moynihan, the new chief executive and president of Bank of America, acknowledged that the banking industry “caused a lot of damage” over the course of the crisis which led to the government pumping hundreds of billions of dollars into the firms to keep them afloat.
“Never has it been clearer how mistakes made by financial companies can affect Main Street, and we need to learn the lessons of the past few years,” the head of the largest US bank said.
John Mack, the chairman of Morgan Stanley, said that in retrospect, many firms were “too highly leveraged, took on too much risk and did not have sufficient resources to manage those risks effectively in a rapidly changing environment”.
However, Lloyd Blankfein, the Goldman Sachs chairman and chief executive, cautioned against over-regulation.
“We know from economic history that innovation, and the new industries and new jobs that result from it, require risk taking,” he said.