Banks Face Fees for Bailout

WASHINGTON -- The Obama administration is aiming to hit banks with a fee to recoup losses associated with the government's bailout of financial firms and the auto industry, administration officials say. The White House hopes the fee will soothe the public's anger at financial firms. Most big banks that received public funds have repaid the government, but the industry is seen by many as having survived thanks to taxpayer support, and is now enjoying a profit rebound as the economy struggles. This month, many large banks will resume paying big bonuses to employees. The Obama administration is likely to slap banks with a fee designed to recoup losses associated with TARP , in a move that could help lower the deficit and reduce risk-taking by big banks. WSJ's Deborah Solomon reports. WSJ's Jerry Seib joins The News Hub to preview his piece looking at whether populist outrage at Washington could be turned toward Wall Street instead. Plus, Simon Cowell says he's leaving "American Idol" and former slugger Mark McGwire admits he used steroids when he broke baseball's home run record in 1998. Much remains uncertain about how such a fee would work. The administration is wrestling with who should pay, when it should be implemented and what would happen if banks pay more than the government-bailout program ultimately loses. Auto makers aren't currently targets of the fee idea. Even though the proposal is still under discussion, it is expected to be included in the White House's budget, due next month, if only conceptually. It's expected to cost large banks billions of dollars and could also affect bank customers if firms pass along the cost. One option under consideration involves placing a fee on a bank's liabilities, a number that theoretically represents the amount of risk a bank takes on, according to officials familiar with the matter. That approach would also have the effect of tamping down banks' risky behavior, another administration goal. Another option would be to target bank profits, these people said. It's unclear precisely who would be subject to the fee . A person familiar with the matter said it's unlikely for now to target auto companies or American International Group Inc., all of which are still struggling. Homeowners who benefited from government-funded housing help also wouldn't pay the fee. A person familiar with the matter said it would make little sense to impose a fee on auto makers or AIG right now: The government owns such a large chunk of them, it would essentially result in the government paying itself. View Full Image Getty Images Barney Frank, House Financial Services Committee Chairman, favors levy to recoup TARP costs. Some within the administration believe targeting banks is justified because they benefited the most from the overall financial rescue and should bear the brunt of helping the government recoup the cost. The proposal comes as the White House and many banks are locked in a feud about whether financial companies are doing enough to revitalize the economy. The fee would likely be designed to avoid hitting certain segments of the financial industry, such as community banks, many of which are still struggling. The administration is trying to structure the fee so that it can't be passed along to bank customers already struggling in the weak economy, but officials concede that's hard to do. In other areas, such as overdraft fees and credit cards, banks have passed on to customers the costs of new legislation. "In our industry, costs are typically passed along to institutions and individual investors, so the burden will likely fall on them," said Timothy Ryan, president of the Securities Industry and Financial Markets Association. Major banks declined to comment. The administration has been talking for months about recouping government funds likely lost through the $700 billion Troubled Asset Relief Program, as it is required to do under the legislation that created the program Concrete Blade. The Treasury Department estimates losses from the program at $120 billion, though administration officials believe the ultimate cost will be much lower. The fee, which would require congressional approval , could hit big banks that have already repaid their TARP funds with interest. The money would be used to compensate for losses in other areas, such as loans to Detroit's auto makers and funds used to prop up the housing sector and giant insurer AIG.