The banking lobby, of course, has already come out strongly against the proposal. Yesterday, JP Morgan Chase CEO Jamie Dimon also chimed in, saying that the fee is meant to “punish people,” which is a “bad idea.” And now House Republicans have gone to bat for the big banks, claiming that implementing a bank fee would be “lunacy”:
Rep. Scott Garrett (R-NJ) “has said any tax or fee could hinder the economic recovery and further limit the industry’s ability to extend more loans.”
Rep. Jeb Hensarling (R-TX): “How you are going to tax banks and expect them to lend more is frankly lunacy.”
Rep. Spencer Bachus (R-AL): “The tax will only drain capital from the financial system at a time when it’s needed to create jobs and fuel economic growth.”
Rep. David Camp (R-MI) said “while he and other Republicans find bonuses being paid by banks that got bailouts ‘irresponsible’ and ‘outrageous,’ they are concerned that taxing banks will hurt lending, and thus job creation.
When Obama tried to encourage banks to make more loans, Republicans criticized him for doing “the exact same thing that caused the [financial] problem.” Now that Obama wants to implement a fee on the biggest banks, though, lending is paramount!
On a more important note, all of the whining is futile, as the TARP law requires the administration to create a fee in order to recoup any of the program’s losses. The law states that some sort of revenue-raising mechanism needs to be in place by 2013, but the administration said that “the President has no intention of waiting that long.”
Like Felix Salmon, I think this fee is structured correctly. “It’s simple, and the liabilities-minus-deposits formula naturally puts more of the onus on investment banks than commercial banks. It also encourages banks to fund themselves with equity rather than debt,” he wrote. Also, the threat of lending being cut or fees being passed on to consumers seems to me to be overblown. Marginal cuts in lending over the long-term may not be the worst thing, as exceedingly easy credit was one contributor to the economic crisis, and if the banks try to pass on the cost of the new fee, that simply gives other, smaller banks an opportunity to keep their prices stable and grab some market share.
It remains to be seen how this is going to square with the fee included in the House’s regulatory reform bill, which raises money to build up a fund for dissolving failed firms without risking taxpayer money. But if, like every other regulatory reform effort, this one meets with blanket Republican opposition, the new fee will serve the administration’s purposes, both economically and politically.