CBO: Obama Bank Fee May Cost Consumers

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March 04, 2010 6:13 PM

Jaffe ABC News’ Matthew Jaffe reports:

President Obama’s proposed fee on the country’s biggest banks receiving taxpayer bailout money would ultimately result in costs to the firms’ customers, employees, and investors, a non-partisan Congressional watchdog said today.

In January the President unveiled a proposal to impose a fee on about 50 of the nation’s biggest banks with assets of $50 billion or more in an effort to recoup around $90 billion of taxpayer money dished out as part of the Wall Street bailout.

“We want our money back and we’re going to get it,” the President said.

But the Congressional Budget Office today warned that “the ultimate cost of a tax or fee is not necessarily borne by the entity that writes the check to the government.”

“The cost of the proposed fee would ultimately be borne to varying degrees by an institution’s customers, employees, and investors,” the CBO said today in a letter to Sen. Chuck Grassley.

“Customers would probably absorb some of the cost in the form of higher borrowing rates and other charges, although competition from financial institutions not subject to the fee would limit the extent to which the cost could be passed to borrowers. Employees might bear some of the cost by accepting some reduction in their compensation, including income from bonuses, if they did not have better employment opportunities available to them. Investors could bear some of the cost in the form of lower prices of their stock if the fee reduced the institution’s future profits.”

The availability of credit – already a problem for some consumers and businesses – could also be limited by the proposed fee, the CBO said.

“The fee would probably lower the total supply of credit in the financial system to a slight degree. It would also probably slightly decrease the availability of credit for small businesses.”

The effect of the fee on the banks, the CBO said, would be “small”.

In response to the CBO analysis, Grassley released a statement, saying, “A lot of analysts have said banks would pass the fees onto their customers. The CBO analysis confirms this and adds a lot of points for consideration from a very credible source. Before this proposal moves forward, Congress needs to understand the consequences, good or bad.”

Even with the proposed fee, the CBO estimated that the full cost of the $700 billion financial bailout would still be nearly $100 billion, plus another $200 million per year for administrative costs.

The financial industry has voiced strong opposition to the fee, with JP Morgan Chase CEO Jamie Dimon saying in January, “I think using tax policy to punish people is a bad idea.”

- Matthew Jaffe

March 4, 2010 | Permalink | Share | User Comments (69)

User Comments

“Your presumption that the shareholders and employees will take the brunt of the $200B penalty is based on what? It’s silly.”

CBO said the fee would slightly lower the supply of credit with no direct fees on consumers likely and strengthen the competitive position of smaller banks. The fee would probably not have a measurable impact on U.S. economic growth.

That is exactly what is in the CBO response to Grassley’s letter on Jan. 15th that asked the CBO to analyze this. The reason that Grassley is doing this is because he is the ranking minority member on the Committee for Finance in the Senate and the big banks who have generously supported Grassley like the status quo and don’t want to see small banks who didn’t have access to TARP funds be in a better position. That’s is what this is about. Grassley doesn’t care if it sticks taxpayers with $100B. He is just looking out for the vested interests of one of his most important constituencies.

If you truly were a Chicago School advocate as so many free marketers support, then you would have let these banks fail wholesale and risked the systematic chaos that would have potentially come with it. Instead it is a reverse Robin Hood approach that has been occurring since the days of LTCM’s failure in the 90s and the quiet covering up most U.S. banks failures due to the Latin American currency crises in the late 80s.

It stinks rotten and we have got to stop this disaster-style capitalism. Both parties are to blame although some of the Republicans like John Shelby (a stooge for the ABA and FST) are the loudest critics against greater solvency requirements, regulation of CDS, etc.

Posted by: MG | Mar 4, 2010 9:54:18 PM

“MG:”Do you actually read the article or are you a stooge who listens to everything you hear on Fox News”

No, Woody isn’t a right-wing stooge. He’s a Libertarian with a pathological fear of government.

Posted by: Skip | Mar 4, 2010 9:51:06 PM

Very Short Lesson…..

The last four letters in American………I Can

The last four letters in Republican…….I Can

The last four letters in Democrats……..Rats

End of Lesson!

OBAMA VS AMERICA

Posted by: another crisis-another photo op | Mar 4, 2010 9:39:46 PM

MG:”Do you actually read the article or are you a stooge who listens to everything you hear on Fox News. If this fee is instituted, the people it would hurt the most are the employees and shareholders.”

==========

Sounds like you have some anger issues, perhaps jealous of your Wall Street buddies in corporate finance. I don’t know, but I suggest you seek out the root of your anger.

Of course the taxpayers are getting stuck with $100B. That’s not the question. Your presumption that the shareholders and employees will take the brunt of the $200B penalty is based on what? It’s silly.

You’re right about Glass-Steagall. So tell me, what have the Democrats done to fix that situation in the last four years? Shouldn’t this be the most important issue before Congress?

Posted by: Woody | Mar 4, 2010 9:37:29 PM

Any of us common folk could see this “pass-along” coming- but then we are not as smart as the President, are we? Yea, right!

Posted by: Gregg Dupree | Mar 4, 2010 9:32:34 PM

Obama takes aim at the middle class again.

Obama Vs America

Posted by: another crisis-another photo op | Mar 4, 2010 9:27:54 PM

Sounds like Barry is going to have another closed door mtg with the CBO to …rethink their wordings. Chicago politics at its best.

Posted by: free_dude | Mar 4, 2010 9:18:50 PM

‘Barney Frank imposing rules for riskier lending to “cure” social injustice.”

This is the kind of tripe you see at CPAC recently. There is a big problem with institutions like Feddie and Freddie Mae given their quasi-governmental status and there is plenty of evidence that their impact since their creation has been marginal on home mortgage rates (about 0.25-0.50 on mortgage interest rates according to research) and has distorted the mark to encourage banks to take on riskier loans (banks were never directly required to get into subprime but they wanted to compete with Fannie/Freddie Mae).

Still, the federal gov’t had nothing to do with banks structuring the off-balance sheet transactions and vehicles which are really at root of this financial crisis. There is no transparency, no regulation, and little/no liquidity requirements on them. It is essentially legalized gambling and was done on nearly every type of financial transaction the last 10 years since Glass-Steagall was repealed in ’99. You are just now seeing this play out in commercial real estate and a few other areas.

Keep spouting off though about stuff you really don’t understand or had a really poor education from college on if you are in finance in the business world.

Posted by: MG | Mar 4, 2010 9:14:47 PM

“Jimmy Obama needs to cover the losses from AIG, GM, Fannie and Freddie by hitting up the banks with a fee when they have repaid TARP in full and with a $19b profit. He should be celebrating that fact as his only true accomplishment since coming into office. This guy is great at reading Axelrod’s words off a prompter but that is about it. There truly is no there, there with this guy. “But he isn’t wearing any clothes at all.”

It is people like HutchTX who have no idea how these programs work and why my colleagues in corporate finance (especially in the financial industry) will continue to see hand over fist from the dopes on Main Street. The taxpayer is going to be left in the lerch to the tab of $100B on TARP alone while it is business as normal with bonuses for proprietary trading desks at nearly every US/British financial institution.

Some of my colleagues from MBA school who work on Wall Street are very happy with this model because it means they get large bonuses especially if they work for the proprietary trading desks.

Posted by: MG | Mar 4, 2010 9:07:27 PM

“No doubt the corrupt wall street banking machine”

Good Lord, open your brain. You ALWAYS have the option of not obtaining the service or product which a private company offers and if it is too bad the companies will go under.

Try that with the government and they put you in jail. That is the difference. The government doesn’t ask you for your taxes they levy them then simply take them from your bank account.

The business of government is taking your money and spending it in ways that ppeople like Nancy Pelosi and Barry Obama want. The level of corruption in ggovernment is 10x the level in private iindustry and much of the “corruption” which has caused our current trouble was introduced by govenment do-gooders like Barney Frank imposing rules for riskier lending to “cure” social injustice.

Posted by: LogicalUS | Mar 4, 2010 9:06:59 PM

Have no doubts, Obama knows exactly what the end result is of his penalizing banks…even if many have already repaid. His true goal is piling on even more class envy to pit citizens against the wrong enemy to our country’s collapsing democracy. Come November, we can put a stop to much of this damage by the newest one term wonder.

Posted by: LDean | Mar 4, 2010 9:03:25 PM

Let’s review for those who don’t remotely understand this:

“Let’s review. Feds force, yes force, institutions to take our money.”

If these institutions (e.g., Citibank, Wachovia, etc) you are talking about would have failed exactly like Lehman did. We still have no idea exactly what their balance sheets really look like because there has been and still isn’t clarity about what types of exposure and how it is structured on off-balance sheet transactions. This is what caused Lehman to fail in the first place.

“but also including the federal government. Institutions pay it back with interest.”

Again just go look at deal that Buffet did with Goldman last fall. He drove an incredibly tough bargain and took some incredibly lucrative terms that were much richer than the federal gov’t and has additional options for future positions. The federal gov’t essentially gave the banks an interest-free loan because of the rates and the Treasury yields. If the banks had gotten deals like they did with Buffet (and they wouldn’t have because the private sector knew these institutions were doomed with federal backing), they would have paid interst that was 3x more than what they paid to the federal gov’t.

“Institutions pass on costs to consumers. Surprised? I’m not.”

Do you actually read the article or are you a stooge who listens to everything you hear on Fox News. If this fee is instituted, the people it would hurt the most are the employees and shareholders. The banks and financial institutions that didn’t take TARP funds would be better positioned and take a degree of business from the large banks that borrowed from TARP. That is how capitalism is supposed to work. Not this BS where the taxpayers give the banks essentially a free line of credit even though there was a crazy risk premium attached and still have to eat a substantial portion of the costs of the program.

Posted by: MG | Mar 4, 2010 9:00:29 PM

Obama and democrats in general fail to understand economics 101. The business’ they dearly want to tax does not print its own money, so business’ merely raises its fees/prices ordinary consumers pay for their good/services. Thus, Obama is not taxing the wealthy (they pass that tax on to on to the middle class and poor who pay it and pay it and pay it). Stupid is as stupid does and it usually votes democrat.

Posted by: Soul Leister | Mar 4, 2010 8:54:09 PM

No doubt the corrupt wall street banking machine will figure out a way to screw their customers/sheep out every dime they can without and any government intervention.

Posted by: Bruce | Mar 4, 2010 8:52:30 PM

What is additional funny is watching the “Blame Bush” fools who lack the intelligence to think well where was Obama before he ran for President?

Oh that’s right, he was a Senator and how did ole fiscal Barry vote on those budget bills? Oh yeah, he always voted for the spending and does any one remember ole Barry railing against government spending. Of course not, he ALWAYS attacked Bush for not spending enough.

Thankfully, November will end this disaster.

Posted by: LogicalUS | Mar 4, 2010 8:51:56 PM

Jimmy Obama needs to cover the losses from AIG, GM, Fannie and Freddie by hitting up the banks with a fee when they have repaid TARP in full and with a $19b profit. He should be celebrating that fact as his only true accomplishment since coming into office. This guy is great at reading Axelrod’s words off a prompter but that is about it. There truly is no there, there with this guy. “But he isn’t wearing any clothes at all.”

Posted by: HutchTX | Mar 4, 2010 8:51:09 PM

Please tell us that OBAMA could not be so dumb as to have done this to the People of these United States?
Doesn’t the man have the ability to THINK?

Posted by: tess | Mar 4, 2010 8:49:44 PM

I love how stupid twits blame Bush for the spending the dems have done since 2006.

Posted by: QED | Mar 4, 2010 8:13:24 PM

I love how stupid twits blame the Dems for Bush’s disastrous economic policy, failing to realize they took over the leadership of Congress in 2007.

Check out Bruce Bartlett’s article in Daily Beast about the GOP’s misplaced rage.

Posted by: progressive mama | Mar 4, 2010 8:20:41 PM

You mean the banks, if charged a new “fee” will pass the cost on to the consumer, causing a rise in their cost-of-living?

You mean if the Federal Government raises ANY fees or taxes for any Corporation or producer of consumer good or services, those companies will simply pass on those new fees/taxes to the consumer?

Wow. Didn’t know that.

Posted by: Alan Davidson | Mar 4, 2010 8:19:12 PM

Problem in the first place was the gov’t priced the loans too cheaply and generously in the 1st place. Amazed at the lack of ignorance on here about how corporate finance works. Most of the banks could not have raised the capital on the private market last year and the few that did (Goldman Sachs with Buffet) paid a much greater price than the very generous terms the federal gov’t gave. Hell, if you look at the difference between the interest loan rate in TARP and the 10-year Treasury yields, this was essentially like giving the banks an interest-free loan and sticking the tax payer with the outstanding balance and administration bees.

What crazy lender gives a bankrupt company a loan in the first place and one that is essentially interest free? The answer is no one and a number of banks would have failed in the process last year. Even Goldman Sachs would have been incredibly pressured in that market contrarily to the BS that their CEO was selling earlier this year in front on of Congress.

Now the banks are playing the old “we’ll just pass the fees” along to the customers rouse which is true in part but not entirely. Banks just want to have to play for the administration costs of the program which were substantial nor pay a more fair market price for the nearly interest-free loans they were given by TARP. Let’s also not forget that TARP is just the tip of the iceberg in terms of what the Fed did to keep banks afloat too. It was really just a small part of the overall effort.

Posted by: MG | Mar 4, 2010 8:18:01 PM

More source:

CBO Warns Obama's Proposed Bank Fee Could End Up Costing Consumers ...
Hot Air » CBO study says banks won't bear the cost of new fees
TARP Cost Declining, BAB Program Cost on the Rise: CBO Budget ...
Obama Presses for Swift Action on Reform; CBO Estimates Cost of ...

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Submited at Friday, March 5th, 2010 at 3:00 am on Politics by fenny
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