WASHINGTON BUREAU — President Obama today joined with other officials to propose a new "financial responsibility fee" that could affect large insurers.
If the proposal is implemented as written, insurers that own banks, thrifts or securities broker-dealers and also have more than $50 billion in assets would have to pay a fee equal to 0.15% of "covered assets."
The Obama administration developed the fee proposal to implement a section of the Emergency Economic Stabilization Act of 2008. The EESA provision requires the president to come up with a plan for having the financial industry pay for TARP. The deadline for setting up a TARP repayment system is 2013.
Obama said Thursday that he wants to move early to make sure that taxpayers get their money back.
"We cannot go back to business as usual," Obama said at a briefing on the fee proposal. "And when we see reports of firms once again engaging in risky bets to reap quick rewards, when we see a return to compensation practices that seem not to reflect what the country has been through, all that looks like business as usual to me. The financial industry has even launched a massive lobbying campaign, locking arms with the opposition party, to stand in the way of reforms to prevent another crisis."
Wall Street seems to be saying that it is more appropriate for the American people to pay for the bailout rather than the financial services industry, even though financial services industry executives are paying themselves huge bonuses, Obama said.
"Ultimately," Obama said, "it is by taking responsibility — on Wall Street, here in Washington, all the way to Main Street — that we're going to move past this period of turmoil."
The current version of the proposal would exclude insurance policy reserves from the covered asset total, because insurers already pay assessments to guaranty funds to protect the reserves, according to a proposal summary.
Bank deposits insured by the Federal Deposit Insurance Corp. would also be exempt, in part because banks pay the FDIC to protect deposits, officials say.
Paul Newsome, a managing director in the Chicago office of Sandler O'Neill Research, says he believes all insurers that meet the criteria established under the program would be involved, whether or not they received TARP aid.
"The key is what type of 'reserves' would be excluded from the tax," Newsome says.
If only certain types of reserves are excluded, the number of insurers that would be subject to the tax could be large, Newsome says.
The American Council of Life Insurers, Washington, wants to understand the proposal better before commenting on it, a spokesman says.
The Financial Services Roundtable, Washington, says the proposal is a premature effort to recover TARP funds. TARP has been a "positive boost to the economy, and the government, and taxpayers are seeing a positive return on their investment," FSR President Steve Bartlett says. "This tax is strictly political."
Barney Frank, D-Mass., chairman of the House Financial Services Committee, says he is glad to see Obama proposing the financial institution tax now, rather than waiting until 2013.
"The TARP program has been both more successful and less expensive than many critics feared, and that allows us to move quickly now to repay the American taxpayer," Frank says. "I strongly support this proposal, and I am confident that the Committee on Ways and Means will be acting on it soon."
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee, says that the government has the right and the obligation to recoup as much TARP money as it can for the taxpayers.
"We may also consider additional means to limit executive compensation as part of our financial reform efforts," Dodd says.
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