WASHINGTON (AP) — A senior administration official says President Barack Obama is ready to announce an administration plan to recover Wall Street bailout shortfalls with a bank fee on the country’s biggest financial firms.
The announcement is expected Thursday. The official was not authorized to discuss the fee publicly.
The official said the fee would be designed to recoup as much as $120 billion. That’s the most administration officials expect to lose from the government’s $700 billion Troubled Asset Relief Program that bailed out banks, automakers and other financial firms.
Most of the TARP losses are expected to come from auto industry rescues and the bail out of insurance conglomerate American International Group Inc.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
WASHINGTON (AP) — Targeting an industry whose political deafness has vexed his administration, President Barack Obama is weighing a levy aimed at recovering tax dollars from government-rescued financial institutions.
The proposed levy could put Obama on the popular side of public opinion that is decidedly against Wall Street and angry over shortfalls in a $700 billion bank bailout fund.
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 idea received an early boost from Speaker Nancy Pelosi, the top Democrat in the House, where there have been calls for a hefty tax on bank bonuses.
“While we have not seen any specific language from the administration, Congress will certainly examine any serious proposals to lower the deficit and recoup even more of the TARP funds for the taxpayers,” said Nadeam Elshami, a spokesman for Pelosi, D-Calif.
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. Banks have also paid dividends from the government help.
The administration is projecting the losses to the government from the bailout program will be about $120 billion, most of it due to auto and AIG assistance.
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 the auto industry or AIG. And any fee could potentially be imposed on banks that have already repaid their TARP infusions in full. Congress would have to approve any fee plan.
Discussion of a bank fee to reduce the federal deficit comes as the administration is preparing to submit its 2011 budget proposal next month and as Wall Street banks this month prepare to hand out near-record compensation for last year’s performance.
Obama has been strident in his criticism of bankers, calling them “fat cats” last month in an interview that aired on the eve of their visit to the White House. With public anger over the bailout still strong, Obama has embraced populist rhetoric in an effort to shame bank executives into paying back the government more quickly and their executives less lavishly.
At the White House on Monday, Obama spokesman Robert Gibbs jabbed at the perceived disconnect between Wall Street executives and their customers. The spokesman said the disparity angered his boss.
“I don’t know anybody, save for a few that work for those banks, that don’t get visibly angry … in reading those stories,” Gibbs said. “I think they’re not listening to the American people.”
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.
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.