The Big Bank Tax: What Will It Mean?


Government has a way of addressing one problem and creating new ones with the remedy. Case in point: the White House wants to tax the TARP banks to the tune of $120 billion over 10 years. The new “fee” would only impact the biggest banks (with more than $50 billion in assets). For customers, though, the new rules could mean less credit and higher rates.

The banks, of course, aren’t rolling over for the White House. Some financial institutions are fighting back by pointing out the obvious. It’s not banks that will bear the burden of new bank taxes — it’s American voters.

Chase CEO Jamie Dimon admonished President Obama in dismissing the tax, “Using tax policy to punish people is a bad idea. All businesses tend to pass their costs on to consumers.”

Details on the White House big bank tax program are sketchy. Banks have already paid back $165 billion of the money borrowed under the Troubled Asset Relief Program (TARP).

But the total amount of the loans given to banks was $700 billion, and the Obama administration would love to get more of that money back.

One trial balloon floating from the White House would have banks paying a “Financial Crisis Responsibility Fee” at a yearly rate of $1,500 for every $1 million borrowed from Uncle Sam. Under that equation, a bank like JPMorgan (Stock Quote: JPM) would owe $20 billion over the course of five years.

According to The New York Times (Stock Quote: NYT), the White House will release a formal bank tax proposal in February, as part of the 2011 federal government budget proposal. The Times reports that President Obama is aiming for $120 billion in TARP money, which might be politically popular given that virtually all of the TARP borrowers made big profits in 2009 (about $3.8 billion total).

Aiming for more than $100 billion in bank taxes could trigger a war between Wall Street and Washington. Expect banks to fight back by threatening to further restrict credit on loans and cut interest rates on popular products like certificates of deposit and checking rewards programs.

That would prove politically unpalatable at a time when bank consumers, as regularly measured on, are seeing historically lower bank interest rates and a tough climate for securing home equity, small business and even auto loans.

So, it’s an uphill climb for the big bank tax. Whether it gets to the top of the mountain seems like a 50-50 proposition right now. But with the political winds blowing against the White House right now, you have to like the banks’ chances of knocking this trial balloon down.

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