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Shortly after the White House issued its proposal that the largest financial firms be assessed a Financial Crisis Responsibility Fee on January 14, the Securities Industry and Financial Markets Association (SIFMA) issued a response from Timothy Ryan, the group's president and CEO. "While we are still learning details of the Administration's new proposed tax," Ryan wrote, "we are concerned to learn that the Government would consider this approach rather than first collecting all outstanding TARP loans plus interest in accordance with the law, and then determine a strategy to recoup any remaining monies."
He also noted the group's concern that since it appears that deposits are excluded from the tax it would have a disproportionate impact on the wholesale capital markets, including consumer access to mortgages, as well as home and student loans.
Ryan went on to point out that "many institutions who participated in TARP, including the nation's largest financial institutions, have repaid taxpayers in whole plus interest, dividends, and warrants, a total of $134 billion."
(While that figure represents what has been repaid, the Obama Administration has estimated that it will lose $117 billion of the $700 billion in TARP funds authorized by Congress. Its proposal for a fee or tax says that if the final loss from the program is more than $90 billion, the tax would remain in effect until the total amount is recouped. If the loss is less than that amount, the fee would expire after 10 years.)
That statement from Ryan is probably not going to be the whole of SIFMA's response. According to a report in the New York Times, the organization may be gearing up for a legal challenge to the proposal. Apparently SIFMA distributed an e-mail message last week questioning whether such a tax might pass constitutional muster and indicating that it had hired a high-powered attorney, Carter Phillips, who has appeared before the U.S. Supreme Court more than 60 times, to study whether a tax on one industry might be arbitrary and punitive.
The Times article noted that a court challenge could be problematic for the banking industry. On one hand it would continue the effort to fight additional regulation, but it could also pit small banks against large ones and further stoke anti-bank sentiment among consumers.
One of the points being made by the banking industry is that banks are being asked to cover losses from the bailout of automakers and firms such as AIG, which are not subject to the new tax.
In an appearance on CNBC on January 14, Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, said banks should pay such a fee because "they engaged in irresponsible activity...and were a major factor in creating the economic crisis." However, Frank also acknowledged the legitimacy of the argument over automakers' responsibility to the taxpayers, which could indicate a willingness to reach some sort of compromise.