Obama calls for bailout tax

NEW YORK (CNNMoney.com) -- President Obama on Thursday called on Congress to tax the largest banks to ensure that U.S. taxpayers don't lose a penny from the federal bailout of the financial, auto and insurance industries over the past year.

The "financial crisis responsibility fee" would target major institutions. It would be levied on those that were the main contributors to the financial crisis and the most significant beneficiaries of the extraordinary actions taken by the Federal Reserve and the Treasury Department.

"My commitment is to recover every single dime the American people are owed," Obama said. "We want our money back and we're going to get it."

Full details of how the measure would work will be part of Obama's proposed 2011 budget, which won't be released until early next month.

But the president's announcement comes as banks are set to pay out tens of billions of dollars in bonuses.

Obama noted that Treasury has already recovered the majority of the funds provided to banks, but said that wasn't good enough.

"If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to afford paying back every penny to taxpayers," Obama said.

His proposal comes a full three years before the law that created the $700 billion Troubled Asset Relief Program would require the president to submit a legislative proposal to Congress to recoup any money lost from the bailouts.

The president's proposal calls for the tax to be in place for a minimum of 10 years, but longer if necessary. "The fee will stay in place until every penny of TARP is repaid," a senior administration official said.

If passed by Congress, it would take effect on June 30 and is estimated to raise $90 billion over 10 years. More than 60% of the money is likely to come from the 10 largest financial institutions.

Firms could be subject to the fee even if they never took TARP funds or if they took TARP funds but repaid them. That's because all major financial institutions benefited directly and indirectly from the efforts to stabilize the financial system, according to the administration.

If the fee ends up raising more money than is needed to fully repay the bailout money, the additional funds would be used to help improve the U.S. fiscal position, which was worsened by the crisis, the senior administration official said.

A group representing 100 financial services companies wasted no time in blasting the proposal.

"Two-thirds of the TARP investment from banks has already been repaid with a large profit to the taxpayer," said Steve Bartlett, president of the Financial Roundtable. "This proposed tax will do nothing more than stifle economic recovery and encumber more pressing concerns, such as covering new regulatory costs."

Obama bluntly said that banks should tap their bonus pools to pay the fee.

"I'd urge you to cover the costs of the rescue not by sticking it to your shareholders or your customers or fellow citizens with the bill, but by rolling back bonuses for top earners and executives," he said.

Firms subject to the fee would have to have more than $50 billion in assets and must be a bank holding company, a thrift holding company, an insurer or a broker-dealer. Smaller firms and community banks would not be affected, the official said.

The fee would be assessed on an institution's liabilities minus its domestic deposits and core capital, which is the firm's cushion against possible losses. It's designed to tax firms with the greatest leverage, which is a proxy for how much risk the firm is taking in the markets.

The fee would be approximately 0.15% of a firm's covered liabilities. So, for example, a firm with $1 trillion in assets minus $100 billion in core capital and $500 billion in deposits, would leave it with $400 billion in covered liabilities. Consequently the firm would be charged approximately $600 million for the fee. (0.15% x $400 billion).

The administration estimates that roughly 50 companies will have to pay the fee, of which 20 to 27 would be banking institutions, according to the official. Roughly 35 would be U.S. companies and the rest would be the U.S. subsidiaries of foreign companies.

Some major beneficiaries of the financial bailout will not be subject to the fee - namely, mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) and automakers GM and Chrysler.

In those cases, the administration didn't think the fee would be workable both because of the structure of those companies' assets and because of their current condition, the senior administration official said.