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Question of the Day – Should Banks Have to Pay a ‘Bailout Fee’?
By JLP | January 12, 2010
Interesting article in today’s WSJ: Banks Brace for Bailout Fee
I think it’s funny, actually. The government wants to impose a fee on banks in order to help pay back the American taxpayer for the costs of TARP. Where does the government think this fee is going to come from? Do they think it is NOT going to be passed on to the banks’ customers (i.e. taxpayers)?
One idea being discussed, is a fee on banks’ liabilities. According to the article, the government claims that this fee will hopefully deter banks from risky behavior. The really funny thing is, it was the GOVERNMENT that wanted banks to make risky loans in the first place through their home ownership pushes and their really low interest rates.
I think this fee has NOTHING to do with repaying for the cost of TARP and everything to do with creating another form of taxation and wealth distribution.
If this fee is being imposed because of anger over bank bonuses, then simply tell banks that bonuses can only be paid in stock (not newly-issued stock either) that can only be cashed in the distant future.
This is a question of the day. What are your thoughts?
Topics: Question of the Day | 16 Comments »
January 12th, 2010 at 12:12 pm
Completely agree… that my first thought after hearing this. It will be passed to the customers just like the Credit Card Act of 2009 is being passed on to the customers.
I agree with your thoughts on bonuses. If you want motivate these CEOs with bonuses, give restricted stock, only sellable after 3-5 years. Also give them long term goals with bonus payouts. Most major corporations have these types of structures with their executive ranks. I know mine does. They get goal based cash awards, RSUs, and a long term stock incentive.
Also, don’t threaten to limit their pay. I forget the Pay Czar’s name, but the guy is a pushover. If your goint to limit pay, do it. Don’t waiver, just do it. I don’t agree with him doing it, because these guys will easily pick up and go somewhere else and have threatened to do so. It’s all one big cluster…
January 12th, 2010 at 12:27 pm
Great post. With the may facets of the financial crisis, it is easy to forget one or more of its several “causes”. One being the government’s push for more home-ownership. It is truly amazing how little responsibility our “leaders” will take while pointing the finger at anybody they can. A true bunch of scoundrels, represented by both parties. Re-elect nobody!
January 12th, 2010 at 1:00 pm
I think the fees are a good idea. The banks received upteen gagillion dollars in rescue funds and the money needs to be paid back. If the banks don’t pay, then who should? I understand that banks will just pass the fees on down to their bondholders, customers, etc, and that is fine too. At least it is the banks and people associated with the banks (read: who were bailed out), that will be paying this fee.
Some Amish guy in Pennsylvania who was not “bailed out”, shouldn’t pay a penny — and that is a good thing.
January 12th, 2010 at 2:30 pm
I agree with you JLP. Just another tax to collect more money for Washington to spend.
January 12th, 2010 at 3:58 pm
BG,
How are these fees supposed to stimulate lending? Obama just called banking heads into his office last month to tell them to lend more, and now they’re considering a fee on liabilities? This administration is pretty good at sending mixed signals. Not to mention several banks have paid back their TARP funds + interest. Note the Fed’s profit of $46 billion today. The best way to get the TARP money back is to stop changing the rules of the game and get the hell out of the way.
January 12th, 2010 at 4:44 pm
If you assume the fee will be passed on, then you have to assume the bailout funds were passed on too. And we all know what most people think about that!
A loan to a customer is a liability – so the fee is to penalize banks that make loans. The symmetry is beautiful – bailout to stimulate lending, fee to contract lending.
I sat behind a bank employee on a plane theother day, and she was explaining to a fellow passenger that it wasn’t really a bailout because the banks had to repay the money – which was lent at a rate of 5%. I was just wondering who other than the government would lend to a failing business at 5%.
But it sure looks good after the fact – the government “makes money” when it gets paid back. No-one seems to consider that if the government wanted to lend to risky businesses they could have charged much higher rates than that.
January 12th, 2010 at 5:09 pm
A fee? Ahahaha, good one. Let them rob our 401k, destroy our housing values, increase our credit card rates to usury levels, fraudulently sell securitized loans (which they knew were going to blow sky high), and then let’s slap them with a fee?
Oh, and that’s after the fact that the only reason they are still here is because we bailed them out. And let’s not forget about the tens of billions that was funneled through AIG, Fannie and Freddie.
I definitely agree it’s only going to get passed through to the little guy. Business as usual.
Instead of a fee, how about this? We send them all to JAIL! JLP, you like the idea of a debtors prison, right? Well, let’s start with them for bankrupting our nation!!!
January 13th, 2010 at 6:43 am
We should either follow France and England’s lead and tax the BANKS 50% of the bonuses they pay out or make all bonuses paid to anyone making over $1 million non-deductable for corporate income tax purposes.
January 13th, 2010 at 8:23 am
A bank’s liabilities are the deposits from its savers. A bank’s assets are its loans. Perhaps the wording s/b changed on this proposed tax?
January 13th, 2010 at 9:39 am
What about the banks that were forced to accept TARP money in order to avoid ‘stigmatizing’ the insolvent – er, undercapitalized – banks?
January 13th, 2010 at 11:25 am
“What about the banks that were forced to accept TARP money in order to avoid ’stigmatizing’ the insolvent – er, undercapitalized – banks?”
Exactly. And what about the banks who paid off the TARP with upwards of annualized 20% interest? Isn’t this huge interest enough? Somehow everyone keeps forgetting about that.
January 13th, 2010 at 11:37 am
#11) The question is, was _all_ the TARP money paid back? What about the banks that took TARP money and still went bankrupt? It the taxpayer is not made ‘whole’, then there should be fees on the industry to recoup the lost taxpayer monies. If the US made a profit (highly unlikely) from the TARP and FDIC claims, then no fee is necessary — just more regulation to avoid the situation in the future.
January 13th, 2010 at 2:50 pm
@BG: Are you suggesting that a well-managed bank that did not participate, or managed it’s risk properly, and did all the right things (and therefore survived and is now profitable) should be forced to pay a fee because an irresponsible competitor went bankrupt before they paid back their TARP money?
That sounds like punishing the well-behaved because the badly-behaved cannot be punished. (Kinda like spanking the good kid who just got all A’s because his brother made youmad when he dropped out and ran away from home.)
January 13th, 2010 at 3:39 pm
I find it ironic that the banks are reacting negatively to arbitrary retroactive adjustments of their debt obligations. I wonder where the government could have gotten such a wild idea to cover its budget short-fall.
January 13th, 2010 at 4:52 pm
#13 Mark) Yes, that’s it in a nutshell. The banking industry had issues and cost a bunch of taxpayer money, and so the banking industry (whatever’s left of it) needs to pay it back.
Very similar to insurance. I pay insurance fees every year, and don’t expect to file a claim — but I know the money I’m paying in ‘fees’ is covering losses that some other person (competitor) realized.
Might as well call this the ‘bailout insurance premium’.
#14) Hah! Good one!
January 13th, 2010 at 8:53 pm
Banks that received significant bailout funds should be charged fees, especially if those fees will be passed on to their customers. By making too-big-to-fail institutions more expensive, customers will move their money to smaller, cheaper institutions, thereby reducing the capitalization of large institutions and helping to mitigate the system risk they pose to the financial system.