The Financial Crisis Responsibility Fee.

feeexample.PNGThe White House announced a new fee on the largest banks today, designed to recoup losses from TARP by charging banks $1.5 million for every $1 billion in bank assets subject to the fee (basically, assets outside of capital reserves and FDIC-insured deposits). Fact-sheet is here [PDF]. It will raise between $90 billion and $117 billion dollars over the next 10 years (the approximate amount of the current TARP shortfall). Jon Chait has a smart take on the politics, and I'd add a few things on the policy side:

- Passing on costs to the consumer. Banks will argue that this fee will force them to pass on costs to the consumer in the form of higher loan interests or some such thing. An administration official who briefed reporters last night made clear he didn't think this argument would hold much water: If banks try to pass on the fees, they'll likely lose market share to other banks, either smaller ones who aren't affected by the fee or to banks who realize it will be hard to make the pass-on-costs argument while awarding employees huge bonuses.

- What about the Autos? Banks will complain about how they've paid back many of their TARP loans, while the auto industry that was bailed out by the same fund isn't being called on to pay money back despite the fact they'll likely be the source of losses. To that end, I'd note that TARP is not the limit of the government's emergency subsidies to the banks -- the banks can consider this a user fee for TLGP, for instance.

- Too Big To Fail. The fee doesn't solve the TBTF problem by far, but it does reign in some banks, particularly, one smart observer tells me, banks in the $80 billion range that are approaching $100 billion in size -- where the financial industry sees TBTF effects beginning -- while also limiting in a mild way the size of the largest banks.

This should just be the beginning, and not the end, of government efforts to reign in the banks. That said, I still don't think we should look with cynicism at this effort -- it's good a sign that Obama is doing this now rather than waiting until 2013, as he legally could under the TARP statute -- and we should encourage the government to build off this decision going forward.

-- Tim Fernholz

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