Obama to announce bailout bank fees

Thursday 14th January 2010

Barack Obama will today announce that he is imposing a fee on banks designed to help the US government recover the costs of its Wall Street bailout.

The scheme will be unveiled at a White House event this morning, and is likely to be included in the budget for the 2011 fiscal year submitted to Congress in early February.

The White House press secretary, Robert Gibbs, refused to give details of the fee to reporters. However, he did say that the president had been discussing such a plan with economic advisers since August, and that officials had been careful to construct a fee that would not harm consumers.

The Troubled Asset Relief Program (TARP) was launched in October 2008 after a series of large American banks collapsed. It allocated the US Treasury $700 billion to buy up banks' difficult-to-value "troubled assets", freeing them up to stabilise their balance sheets and start lending.

A Treasury report to Congress submitted on Monday said that the government had so far distributed $372 billion in TARP funds, $165.18 billion of which had been paid back.

However, the Obama administration is keen to fully recoup the government's losses from the financial crisis. An anonymous senior official told AFP: "The president and the economic team felt it was important to discuss ways to recoup every dime for the American people more quickly than the law required."

It is expected that such a fee would be levied based on the amount by which a bank's liabilities outweigh its assets – in other words, how much capital it has to support the bets it has made. This would be a way of punishing "high risk" transactions by larger banks, and could discourage institutions from merging and forming those which are "too big to fail".

The bipartisan commission appointed to investigate the causes of 2008's financial crisis held its first hearing on Wednesday, with testimony from the executives of the country's biggest banks. Some were regretful, with Bank of America's chief executive Brian Moynihan telling the panel: "Over the course of the crisis we as an industry caused a lot of damage."

However, the White House demanded an apology from the bankers, with the press secretary alleging that: "There are some on Wall Street that seem to believe that nothing has changed."

The president's announcement today comes as Wall Street banks prepare to pay out their 2009 bonuses, while new figures put US unemployment in December at ten per cent.

With congressional elections looming this year, the Obama administration is anxious to soothe public anger towards Wall Street. Some Republicans have claimed that such a fee on banks could harm economic recovery. However, most analysts believe that politicians' concerns about retaining their seats in November means that such a measure will be supported by Congress.

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