A fee on the biggest banks would raise $90 billion over 10 years to cover the cost of bailing out institutions during the financial crisis, U.S. Treasury Secretary Timothy Geithner told the Senate Finance Committee today.
And such a fee would not curtail lending, as some critics have suggested, he testified.
The Financial Crisis Responsibility Fee proposed by President Obama in January is still very much on the table and Geithner is seeking support for the proposal that is sometimes referred to as a bank tax or bailout fee.
Geithner sought to clear up a few things in prepared testimony for today, which provided an update on the U.S. primary bailout program, Troubled Asset Relief Program, or TARP.
The proposed fee, which would be imposed on banks with at least $50 billion in assets, is an extension of existing Democratic reform provisions now under debate in the Senate.
Geithner also said the cost of bailing out the financially troubled institutions beginning in the second half of 2008 is now estimated to be somewhere between $90 billion (estimate by Congressional Budget Office) and $117 billion (the administration’s estimate).
About a year ago, administration officials feared TARP would cost $500 billion. Since then, most major banks have repaid their bailout funds, and Treasury stands to make significant returns on some TARP investments.
“We anticipate that our fee would raise about $90 billion over 10 years, and believe it should stay in place longer, if necessary, to ensure that the cost of TARP is fully recouped,” Geithner said.
The Treasury Secretary also responded to critics of the fee who say it would further contract a tight credit environment.
“The fee is designed to limit the risk of any adverse impact on lending,” Geithner said. “The fee excludes over 99 percent of U.S. banks, which currently provide the majority of small loans to businesses and farms across the country.”
The Congressional Budget Office noted that the proposed fee “would improve the competitive position of small- and medium-size banks, probably leading to some increase in their share of the loan market,” according to Geithner.
What institutions will qualify for the fee: U.S.-based bank holding companies thrift holding companies, certain broker dealers, companies that control insured depositories and certain broker-dealers. The U.S. subsidiaries of international firms that fall into these categories and are larger than $50 billion would also be covered.
These same firms “were eligible for, and were the major beneficiaries of,” the Treasury’s and the Federal Reserve’s various liquidity facilities of the past several months.
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