Obama pitches bank tax

Mindful of soaring deficits and an anti-Wall Street mood, U.S. President Barack Obama wants a new tax imposed on the country's largest banks to cover a projected $117-billion US shortfall in the government's financial crisis bailout fund.

At a press conference at the White House Thursday, the president proposed a levy of 15 basis points, or 0.15 per cent, on the liabilities held by the 50 largest U.S. financial institutions to ensure repayment of every dollar from Washington's Troubled Asset Relief Program to rescue Wall Street firms, auto companies and mortgage holders.

"This is not a tax on small, regional lenders," Obama told reporters. "The size of the fee will be based on a bank's size and exposure to debt."

The tax, which officials are calling the "financial crisis responsibility fee," must still make its way through Congress.

"We have now recovered a majority of the funds loaned to banks, but as far as I'm concerned, that's not good enough," Obama said. "We want our money back and we're going to get it."

Institutions with more than $50 billion in assets would have to pay the fee even though many did not accept any taxpayer assistance, and most of those that did have already paid back their government infusions.

If approved, the fee would be in effect beginning June 10, 2010, and remain in place for 10 years.

'We want our money back and we're going to get it.' —U.S. President Barack Obama

Obama suggested banks could pay for the tax by tapping their generous executive bonus pools.

At issue is the net cost of TARP, the fund initiated by the Bush administration to help financial institutions get rid of toxic assets. The fund has since evolved, helping not only the banking sector but also auto companies and homeowners.

Washington had initially put a price tag of $700 billion on the program. But Obama said Tuesday that the turnaround in equity markets means the final cost will come in closer to $117 billion. "That's a lot less than people had feared but still a lot of money," he said.

"TARP was designed to help them survive the turmoil they unleashed," Obama said. "It was a distasteful but necessary thing to do."

Auto firms exempt

Insurance conglomerate American International Group, the largest beneficiary with nearly $70 billion US in bailouts, would have to pay the tax. But General Motors Co. and Chrysler Group LLC, whose $66 billion in government loans are not expected to be fully repaid, would not be subject to a tax.

Bankers did not hide their objections.

"Using tax policy to punish people is a bad idea," Jamie Dimon, chief executive officer of JPMorgan Chase & Co., told reporters even before details of the tax were known.

"It would be very hard for the industry to pay for the auto companies," Dimon added. "I mean, at one point you have to be a little fair."

In Congress, the idea was receiving a partisan reaction, with Democrats embracing it and Republicans rejecting it.

"Look, the financial institutions collectively, particularly the larger ones, caused problems by their errors — their errors of judgment, their irresponsibility, in some cases their skating around dishonesty," said House financial services committee chair Barney Frank, a Massachusetts Democrat.

"I think it is entirely reasonable to say that the industry that, A, caused these problems more than any other and, B, benefited from the activity, should be contributing," he said.

Republican Congressman Jeb Hensarling of Texas, a member of Frank's committee, ridiculed the idea. "To think that banks will loan more money if you tax them is beyond economic ignorance," he said.