WASHINGTON (AP) — President Barack Obama is weighing a levy on Washington-rescued banks to help recover shortfalls in a $700 billion bailout fund and to help balance a budget that is looking increasingly grim amid an ongoing economic crisis.
A senior administration official said Monday that Obama would seek modifications to the law that sent billions in bailout money in 2008 and 2009 to a flailing Wall Street that was approaching collapse. The government official spoke on the condition of anonymity to discuss the president’s thinking.
The 2008 law that created the Troubled Asset Relief Program requires the president to seek a way to recoup unrecovered TARP money from financial institutions, but five years after the law was enacted. It does not specify how the money should be recovered.
An industry official said consideration of a levy now would be premature.
“Current law doesn’t trigger this tax proposal for another four years,” said Scott Talbott, chief lobbyist for the Financial Services Roundtable, an industry group for some of the largest financial firms.
“We look forward to seeing the details of the complexity of the formula, of who it’s applied to and what the assessment is based on and when it is applied,” he said.
Government officials have conceded that they don’t expect to recoup billions in TARP money used to rescue insurance conglomerate American International Group Inc. and the auto industry. Banks have been repaying their infusions, in part to get out from under compensation limits imposed on the bailout recipients.
The administration is now projecting the losses to the government from the bailout program will be about $120 billion.
According to the law, the status of the TARP fund must be assessed by late 2013 —five years after it passed. “In any case where there is a shortfall,” the statute says, “the President shall submit a legislative proposal that recoups from the financial industry an amount equal to the shortfall in order to ensure that the Troubled Asset Relief Program does not add to the deficit or national debt.
It is unclear how the administration would seek to recoup shortfalls due to TARP infusions into he auto industry or AIG. And any fee could potentially be imposed on banks that have already repaid their TARP infusions in full.
Obama has been strident in his criticism of bankers, calling them “fat cats” last month on the eve of their visit to the White House. With public outrage over the bailout still high, Obama has embraced populist rhetoric in an effort to shame bank executives into paying back Washington more quickly and their executives less lavishly.
The senior administration official said the move would uphold Obama’s promise to recoup taxpayers’ investment in the financial industry. Funds collected from such a levy would go to pay down the $1.4 trillion deficit amid the Obama-backed stimulus package and aid to Detroit’s automakers.
Earlier Monday, White House press secretary Robert Gibbs declined to discuss specifics of the plan. When asked if Obama’s upcoming budget proposal will specifically include a measure to ensure that taxpayers are paid back in full, Gibbs said: “That’s the president’s goal, yes.”
Washington spent about $245 billion to help banks in the Troubled Asset Relief Program — much less than President George W. Bush’s Treasury Department secured to keep financial firms afloat.
So far, $162 billion of that has been repaid, including $20 billion each from Citigroup and Bank of America under a special, targeted program.
Associated Press Writer Jim Kuhnhenn contributed to this report.