Obama to Seek Fees From Banks, AIG to Recoup Bailout Funds

By Alister Bull | January 14, 2010

President Barack Obama will propose a fee Thursday to recoup from the country’s top financial institutions up to $117 billion lost on a taxpayer bank bailout fund, a senior administration official said.

Obama will announce the plan in a statement at 11:50 a.m. , although full details will not be available until his fiscal 2011 budget is released in early February. It will then be subject to shaping by U.S. lawmakers in the Congress.

Here are some of the most important details of the financial crisis responsibility fee to recoup losses suffered on the country’s $700 billion Troubled Asset Relief Program, or TARP:

Obama’s proposal will apply only to firms with over $50 billion in assets. No small or community banks would be subject to this fee. Covered institutions would include bank holding companies, thrift holding companies, insured depositories and insurance companies that as of today own one of these types of entities. Broker-dealers with assets greater than $50 billion dollars would also be covered.

Obama’s bailout fee would be approximately 15 basis points, or 0.15 percentage point, of covered liabilities. This would be determined by looking at a firm’s total assets and subtracting their tier one capital, which includes their common stock, disclosed reserves and retained earnings, and as well as FDIC (Federal Deposit Insurance Corporation) deposits for banks, or insurance policy reserves for insurance companies.

About 50 firms are expected to be covered in some way by the fee. Around 35 of them will be U.S. companies, and 10-15 will be the U.S. subsidiaries of foreign companies. The Obama administration estimates that 20 to 27 of the U.S. firms will be banking institutions.

Insurer American International Group, saved in a multibillion dollar rescue in September 2008, will not be excluded from the fee.

U.S. automakers who got bailout money will be spared because they were deemed to be industrial companies for whom the liabilities assessment made no sense.

Also spared are mortgage giants Fannie Mae and Freddie Mac, now in government conservatorship, because the Obama administration did not see that it made sense for taxpayers to effectively have money shifted from one pocket to the other.

TARP losses in the fiscal 2011 budget, to be released in early February, will be projected at $117 billion, down from $341 billion in the midsession budget review last year.

The Obama administration will propose that the fee last for a minimum of 10 years and for as long as necessary to ensure all TARP losses are repaid.

It expects to raise $90 billion over 10 years and thinks that amount should be enough to cover all TARP losses. But the fee will stay in place until every penny of TARP is repaid.

The Obama administration proposal would exempt FDIC assessed deposits and insurance policy reserves from the fee calculation. These are reserves that are already in some way facing an assessment, either to the FDIC, or through insurance policy reserves. To avoid placing a double fee on the holdings they would be exempt.

Firms’ liabilities would be determined by their regulator and the fee would be collected by the U.S. Inland Revenue Service and would go to the general fund of the federal budget to ensure that the national debt and budget deficit are fully protected from TARP loss, as is required under U.S. law.

The Obama administration expects that about 60 percent of the money raised by the bailout fee will come from the 10 largest financial firms.

The fee will be levied on financial firms even if they have already repaid capital received from TARP, as well as on firms that may not have received any TARP money at all because they benefited greatly from the stability TARP helped bring to the U.S. economy, the Obama administration says.

(Reporting by Alister Bull; editing by Todd Eastham)

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