Proposal for Feds to earn back TARP monies

Over the weekend the Obama Administration proposed a way for the U.S. Federal Government to recoup bailout monies paid in 2008 and 2009. At this point the details are uncertain, but the general idea is that the Feds would charge a fee to banks. One idea is to levy the fee on banks liabilities. The riskier the liabilities, the higher the fees paid. Effectively it would be a tax on risk.

Personally I think the plan, however it is implemented, is a bad idea.

Among my many questions about this proposal…

* Question 1: Who would pay the fee?

Why would the Obama Administration, for example, charge a fee to banks that did not need bailout funds? This would unnecessarily punish well run banks for the benefit of their less competitively run foes. Additionally, a fee assessed on all banks would likely lead to an increase in the fees charged by banks to their customers. So ultimately the Fed’s bank fee is just a veiled tax increase on the consumer. Try as they may, governments still have not figured out a way to not make the public pay after the buck has stopped.

* Question 2: Why implement the fee now?

Most of the TARP funds have been paid back. The few institutions that have not paid back their full allotment of bailout monies are entering an upward economic cycle that will likely increase their profitability and solvency. Why not just wait for the monies to be paid back?

* Question 3: What if the fee generates more money than was paid out in bailout funds?

Nuff said.

*****

Jason