Bank Lobby Bemoans The ‘Absurd’ ‘Perplexing’ ‘Burden’ Of Obama’s Proposed Bank Fee

Yesterday, Politico reported that the Obama administration is mulling over implementing a bank fee in its next budget, in order to “recoup” the cost of the Troubled Asset Relief Program (TARP) and decrease the deficit. Of course, the banking lobby is up in arms:

Edward Yingling, president and chief executive, American Bankers Association: “To impose yet another burden on the industry would obviously decrease their ability to lend.”

Scott Talbott, head of government affairs, Financial Services Roundtable: “Placing additional taxes on top of the new regulatory burdens will stifle the industry just as the economy is beginning to recover.“

Yingling also referred to the proposal as “perplexing,” while another banker called it an “absurd idea.” The main argument coming from the banks is that they either already have or are in the process of paying back TARP, and that any losses are going to come from either the automakers or AIG.

However, as Tim Fernholz pointed out, the TARP law does stipulate that any losses be recouped from the banks. “This began long before everyone started gearing up for the next cycle of bonus madness as an obviously needed response to the bank bailouts,” he wrote. A revenue-raising mechanism to fit this requirement has been under debate for some time within Treasury, so the bankers don’t have much of a leg to stand on.

Still, I don’t understand why the administration is making this about recouping TARP, in isolation, when it could be using this as an opportunity to talk about TARP and every other extraordinary step that the government took to rescue the financial system. Obama and the Treasury can remind the banks — and everyone else — about FDIC guarantees, and allowing investment firms to convert into bank-holding companies with cheap access to loans, among many other actions. The banks’ survival — and their ability to make huge profits so soon after they were staring into the abyss — did not start and end with TARP, and neither should their debt to taxpayers be satisfied solely by paying back their TARP funding.

There are plenty of other ways to raise revenue from the banks — including a transactions tax or taxing bonuses — but the administration has been intently shooting those ideas down. Still, the financial services industry, which handles about $50 trillion of transactions per year, can afford to pay higher fees and taxes, in one way or another. So if the administration is going to put its eggs in the “recouping the bailout” basket, it should make sure that the banks can’t portray themselves as victims of an unreasonable levy by reminding everyone just how extensive the effort to save the financial system really was.