Obama Administration Considers Fee on Banks to Recoup Bailout Funds

[highplainsdem]

http://online.wsj.com/article/SB126322918488724799.html?

WASHINGTON -- The Obama administration is considering levying a fee on banks to recoup more of the taxpayer funds spent to rescue the financial system, according to an administration official.

The proposal is still subject to discussion and no final decision has been made as to what form it might take. It's expected to be included in next month's budget, and as such could also be presented as a way to pay down the U.S.'s large deficit.

Such a move comes as Wall Street banks, having regained their footing, are set to pay out large bonuses. Despite the mortgage meltdown, financial firms are coming off a blockbuster year. Revenue has rebounded to pre-crisis levels, and 2009 compensation is on pace to approach or surpass the record payouts of 2007.

-snip-

Ideas currently under consideration by the administration include a more straightforward fee. It's not yet clear whether the move would require congressional approval. The original legislation creating the Troubled Asset Relief Program provided a way for the government to recoup its investments.

One challenge faced by the administration is structuring a fee that doesn't simply get passed on to the bank's customers or other investors.

-snip

A step in the right direction...

[Captain Hilts]

1. We end up paying it either way. nt

[DJ13]

2. If they really want to improve the economy they would institute high fees

A yearly fee that could be avoided if the bank in question reduced their consumer interest rates to an average thats no higher than Prime plus 5%.

The amount of the fee needs to be sufficiently high that the banks would consider the avoidance as a necessity.

Of course, it wont happen...... our government is neutered when it comes to getting tough on the banks.

[FBaggins]

5. That's not "getting tough on banks"... it's getting tough on customers

There are loans that charge around that figure... but they're only going to go to the most credit-worthy borrowers. Put a cap like that on rates and you're saying "don't loan to the middle class". All the banks would do to comply with the cap would be to make no loans where the appropriate pricing would be higher than that level.

[DJ13]

8. The cap amount was arbitrary

But seriously, the administration needs to come down on the side of consumers if they are serious about getting us out of a consumer led recession.

Thats just simple logic.

[FBaggins]

9. I understand that... but the principle is the same

The variation in rates corresponds to the variation in the amount of risk associated with the credit exended. In general, the banks with the lower rates have higher credit standards and visa-versa. Of course I agree that many charge too much, but it would be awfully hard to set a limit in a way that wouldn't dramatically reduce the availability of credit (which would not really be coming down "on the side of consumers").

[DJ13]

10. You seem to think giving the consumers high rates is in their best interest

just to secure credit.

I dont.

If the interest was capped there would still be some banks willing to take over a market the bigger banks wouldnt want, and then the poorer people wouldnt be gouged.

Think like a businessman, if theres a market they will tap into it.

[FBaggins]

13. Strawman

Where did I ever say high rates were in their best interest?

If the interest was capped there would still be some banks willing to take over a market the bigger banks wouldnt want

No there wouldn't. Whatever rate you capped it at would be the government deciding who did and who didn't get credit.

Think like a businessman, if theres a market they will tap into it.

I AM thinking like a businessman... you aren't. Yes... if there's market it will be tapped, but you just killed the market.

If you set a limit on gas prices of, say, ten cents a gallon over the wholesale price of fuel... then you have just closed any gas station where the price of doing business is greater than ten cents a gallon. Every gas station in an area with high land prices will close because your cap doesn't take into account different parts of the market.

It's simply. Poorer people default at a higher rate than the rest of the market. That doesn't mean that they should never get any credit, but it does mean that if the default rate is anywhere close to the gap, the bank loses money on the portfolio. Some banks have 15% default rates right now on that portfolio. If you capped the credit card rate to, say, 10%... well... there is no "market" there. No other bank willing to step in.

[DJ13]

15. Historically credit has always been regulated

Its time to put that genie back in the bottle, since its obvious the banks feel customers are nothing but rubes to be subjected to ever increasing rates and fees in an effort to pad their profit margins so the execs can increase their bonuses.

I would have thought that any rational person after living through the collapse of the banks due to them becoming unregulated wouldnt continue excusing their way of doing business.

I guess I was wrong.

[FBaggins]

16. Were you under the impression it wasn't regulated now?

It isn't that there isn't ENOUGH regulation... it's just lots of the WRONG ones.

But "regulation" doesn't mean "we set the interest rate"... because as I said, doing so would have negatve consequences.

I guess I was wrong.

You were... why do you think I was correcting you? :)

Seriously, rates in general really aren't very high. Just look at the average bank's net interest margin. That's the difference between the rates they're paying out on deposits and the rates it's charging for credit. That margin got about as tight as it has ever been about a year ago. It used to be that a well-run bank could get that number over 5%... but nobody sees those numbers any longer. That's what caused banks to start charging all these fees.

It's the fringes (credit cards to lower credit scores) that are getting hammered, but capping the rate means that those people don't get credit. That may be what's in their best interest, but I don't want to be the one to make that call for them.

[DJ13]

18. Seriously, rates in general really aren't very high.

What constitutes "high" to you?

More people are now seeing credit card rates above 20% (or even 30%) than ever before.

You dont think that is abusive behavior by the banks when the Fed Funds rate is 0-.25%?

lol

[FBaggins]

19. What constitutes high to me?

I'm pretty sure I laid that out, didn't I?

There's a whole range of rates out there, and yes, I think many people who don't pay their balance in full are getting gouged... but that's not "rates in general".

As I said, banks all report the gap between the interest they pay and the interest they charge on their lending. That margin has compressed over the last 20 years or so to where it hit incredible lows a bit over a year ago. If bank's net interest margins were back where they were in the 80s, banks would be far more profitable even with much lower fees. But borrowers would be paying more. If a bank's net-interest-margin is high, that means they're charging higher rates (compared to their funding costs) and that's when they're making higher profits off of rates.

When you consider that banks' cost-of-funds is about at an all-time low (with basically zero percent fed funds and barely higher than that on CDs and other deposits), that narrow net interest margin means that overall rates are at historic lows. Almost everything BUT credit cards (and other unsecured lending) is at very low rates right now.

You dont think that is abusive behavior by the banks when the Fed Funds rate is 0-.25%?

It certainly could be. But if you were a bank that loaned through credit cards and 15% of your balances were in defauly... what rate would you have to charge just to break even? What rate would you charge if you were worried that it could get worse? Banks also don't generally fund credit cards with fed funds (one is an overnight rate and the other can take quite a while to pay off)... so you need to add whatever the cost of your funds are.

[FBaggins]

3. As long as the fee is in some way related to TARP funds... ok

What about the banks that never took a dime? Or what about the banks that begged to not be part of the program... were forced to anyway... and then paid it back fifteen seconds after the government permitted them to?

This administration needs to decide whether they're going to let the bad banks lose for their mistakes and the good banks survive/thrive... or they're going to try to assist the ones that made stupid decisions, at the expense of the ones that didn't.

You can't have both.

[Xithras]

4. I have a better idea. A special excise tax on bank stock dividends

Not only would it be a tax that cannot be passed on, but it would be recouping the money from the people who benefitted most.

[FBaggins]

6. Lol... who says it can't be passed on?

More importantly... how many banks did you think were paying dividends any longer? :)

[Joanne98]

7. FEES? He's going to FEE the FEEMEISTERS? This should be good!

[TheKentuckian]

11. Pass, time to nationalize, break 'em up, and re-privatize once sanity is restored to the system

but we'll just let them continue to play head I win, tails you lose with the treasury while they remain too big to fail.

TARP is a red herring the real money comes from the FED and the Treasury and we are in hock to the tune of tens of TRILLIONS because we're backing their gambling losses.

[SoCalDem]

12. Godammit.. Just break the damned things up, fire their CEOS & start over

with the PUBLIC good, as first goal.

Banking should be a UTILITY...not a CASINO

[Vinnie From Indy]

14. England has the right answer

Tax the shit out of the bonuses and any other form of compensation given to executives. I also agree with breaking these companies up into smaller units. Too big to fail is too big to exist.

[freddie mertz]

17. Regulate Credit Card rates! Set the ceiling at 10 % above the prime rate. Max.

That would save our economy and cut the bloodline to the banker-vampires at the same time.

[MadHound]

20. I hope that Obama realizes that he needs to carefully word this proposal

Otherwise the fees he levies on banks will simply be passed on to the bank customers.

I also hope that he only levies this fees on the banks who took out TARP money. Why should I pay twice, since the bank I use is a small local town bank that was sensible and didn't need bailing out?