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Bank Tax, TARP Tax: Obama's "We Want Our Money Back" Fees

The tax may help us raise money, but the elephant is still in the room: we still don't have regulatory reform, and the system that allowed the crisis to occur is still in place.
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Editor-at-Large, <a href="http://moneywatch.com/">CBS MoneyWatch.com</a>

Editor-at-Large, <a href="http://moneywatch.com/">CBS MoneyWatch.com</a>
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I guess "Bank Tax" or "TARP Tax" was out, because the President doesn't want to be known as the guy who taxes too much. Calling it the "We Want Our Money Back Fees" has a certain populist appeal, but President Obama settled on "Financial Crisis Responsibility Fee," which is too long a name and not a snappy enough acronym for any of us.

That said, the President channeled the whole "
Fat Cat
" passion once again and sternly said, "We want our money back," and then quickly rolled out
the Bank Fee plan
which looks like this:
  • Fee (or tax) on financial firms with more than $50 billion in consolidated assets
  • Fee = 0.15% of company liabilities, minus FDIC-assessed deposits, insurance policy reserves and shareholder equity
  • Fee will remain in place for 10 years
  • Estimated to raise $90 billion over ten years
The rationale behind the tax/fee is basically this: the banks took us to the edge of the abyss because of their excessive risk-taking. Only massive amounts of emergency taxpayer money saved the system from total collapse. Although many of the big banks have already repaid TARP and in doing so, the government made money on those specific investments, there will still be money lost in the plan. The fee attempts to recoup those losses over the next years.

Those are the basics, but here's my question: will the bank tax change behavior throughout the system? I don't think so. It's hefty, but certainly doable, especially for the big banks. It favors depository institutions over what were investment banks (Goldman Sachs and Morgan Stanley), but so what? Those firms will simply pay the tax, make their money and get on with their business.

The tax may help us raise money, but the elephant is still in the room: we still don't have regulatory reform, and the system that allowed the crisis to occur is still in place.

Image by Flickr User AlanCleaver_2000, CC 2.0

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