Administration Picks up Push for TARP Tax on Big Banks

President Obama's proposal to tax the nation's largest banks is back on the table, and stirring up quite a debate.

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On Tuesday, Treasury Secretary Timothy Geithner urged members of Congress to approve the president's levy on big banks, which is expected to generate $90 billion over a 10-year period â€" money the administration says will cover the costs of the Troubled Asset Relief Program (TARP).

""[T]he fee targets, and thereby would help discourage, activities that pose the most risk to the stability of the financial system,"" Geithner said, echoing the president's earlier comments that blame for the nation's financial turmoil lies squarely with the largest banks.

The Financial Crisis Responsibility Fee, as the administration has labeled it, was ""first suggested by President Obama"":http://dsnews.comarticles/obama-proposes-bank-bailout-tax-to-recoup-90-billion-2010-01-14 in January as part of his federal budget. Obama said at that time that he was committed to recovering ""every last cent"" of taxpayer dollars spent on bailouts to prevent the financial system's collapse.

The annual fee would apply to all financial institutions with more than $50 billion in assets, and would be equal to 0.15 percent of a company's liabilities, excluding insured deposits and Tier 1 capital.

Opponents of such a fee point to the fact that most of the big banks have repaid their TARP money in full, plus interest, dividends, and warrants. The ""Treasury said in early April"":http://dsnews.comarticles/tarp-repayments-reach-181-billion-2010-04-05 that investments it made in the banking system, which were initially projected to cost $76 billion, are now expected to turn a hefty profit for taxpayers.

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The administration itself has said that the majority of the losses expected on TARP funding will come from its assistance to the auto industry, but these companies and manufacturers will not be required to pay the Financial Crisis Responsibility Fee.

The idea that the nation's banks should shoulder the cost of all the government's bailout interventions is not solely President Obama's. One of the conditions written by Congress into the legislation that gave the green light for TARP is that the president lay out a plan ""that recoups _from the financial industry_ an amount equal to the shortfall in order to ensure that the Troubled Asset Relief Program (TARP) does not add to the deficit or national debt.""

Some lawmakers, though, are already questioning whether the president's big-bank tax is the appropriate plan.

""A lot of analysts have said banks would pass the fees onto their customers,"" said Senator Charles E. Grassley (R-Iowa) at the Tuesday hearing.

Grassley cited information he received from the Congressional Budget Office (CBO) that said, ""[t]he cost of the proposed fee would ultimately be borne to varying degrees by an institution's customers, employees, and investors,"" and would result in a ""slight decrease"" in credit availability.

Steve Bartlett, president of the Financial Services Roundtable, testified that lending would be cut by $900 billion if you assume a 10 percent leverage ratio for every dollar of bank capital lost to the tax.

Obama has stressed that only the Wall Street giants â€" not smaller, community banks â€" would be impacted, with some 60 percent of the tax revenue coming solely from the nation's 10 largest financial firms.

But even community banks are siding with the big guys on this fight. The Independent Community Bankers of America ""said in a letter"":http://www.icba.org/files/ICBASites/PDFs/ltr041910a.pdf to Senators last month, ""Punishing a single sector using the tax code is simply bad tax policy."" The organization described the Financial Crisis Responsibility Fee as ""flawed"" and ""misplaced.""