Monday, February 13, 2012

Obama Administration's Proposed Budget Calls for Financial Crisis Responsibility Fee on Large Financial Institutions

The Obama Administration’s proposed budget reissues the call for a Financial Crisis Responsibility Fee on the largest financial institutions to fully compensate taxpayers for the extraordinary support they provided to the financial sector through the Troubled Asset Relief Program (TARP) and other Government actions. The assistance given to the largest financial firms represented an extraordinary step that no one wanted to take, said the Administration, but one that was necessary in order to stem a deeper financial crisis and set the economy on a path to recovery.

The cost associated with the excessive risk-taking by the largest financial institutions continues to ripple through the economy. Furthermore, although many of the largest financial firms have repaid the Treasury for their TARP assistance, they continue to implicitly benefit from the TARP funds that bolstered their balance sheets during a period of great economic upheaval.

The fee will be restricted to financial firms with assets over $50 billion and will be imposed until all TARP costs have been recouped. The Administration’s Financial Crisis Responsibility Fee aligns with the congressional intent of the TARP legislation that requires the President to propose a way for the financial sector to pay back taxpayers so that not one penny of the Government’s TARP-related debt is passed on to the next generation. It would extend be¬yond 2021 as necessary to achieve these ends. The structure of this fee would be consistent with principles agreed to by the G-20 Leaders and similar to fees proposed by other countries.

The financial crisis responsibility fee would be based on liabilities of U.S.-based bank holding companies, broker-dealers, and companies that control broker-dealers and insured depository institutions. A driving rationale for the financial crisis responsibility fee is that it would provide a deterrent against excessive, and potentially risky, leverage and assets for the largest firms.

The fee would only apply to firms with worldwide consolidated assets of $50 billion or more. Firms with worldwide consolidated assets of less than $50 billion would not be subject to the fee for the period when their assets are below the threshold. United States subsidiaries of foreign firms that fall into these categories and that have assets of $50 billion or more also would be subject to the fee.

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