Obama To Announce New Big Bank Fees Thursday

President Obama will announce new fees on "high risk" transactions carried out by big banks as part of a complicated White House effort to recoup bailout funds, address simmering anger over bank bonuses and simultaneously shield consumers from the bank levies.

"As the banking industry recovered, the President and the economic team felt it was important to discuss ways to recoup every dime for the American people more quickly than the law required," a senior administration official said.

A senior administration official tells Fox the bank fees President Obama will propose in his 2011 budget will not seek to raise $120 billion, as some have reports have indicated. The currently estimated unpaid balance from the 2008 bailout program is $120 billion, but Treasury and White House officials expect that amount to decline in the coming months.

Under discussion since August, the fees are designed to discourage the edgier risk-taking investments such as derivatives, mortgage-backed securities or collateralized debt obligations that bigger banks used to pad their profits before the financial meltdown.

The top administration official, who spoke on the condition of anonymity, the size of the fee and the projected amount it will raise remain uncertain. Staff at the Treasury Department and the Office of Management and Budget are still calculating the likely 10-year returns.

The official said the fees will not seek to raise even $100 billion, but an amount in the high tens of billions that will recoup all of the unpaid balance of the Trouble Asset Relief Program (TARP).

The administration has already rejected imposing a straight fee on bank transactions for ordinary customers. It has also ruled out levies on executive compensation.

In the first case, officials determined consumers would have the transaction tax passed directly onto them. In the second case, the administration determined big banks could re-jigger compensation packages to avoid any new tax, depriving Treasury of revenue and doing nothing to penalize sizable compensation packages or bonuses.

The most likely scenario, the official said, is a tax on transactions larger investments banks make to increase their profits through the use of derivatives or other products.

"Think of this as a tax on risk-taking by big banks," the official said. "In the bailout the taxpayers back-stopped banks and those banks paid nothing for that guarantee. They lived off that guarantee."

The administration's goal is to impose a fee on the risk-oriented transactions in ways that would neither affect smaller banks or discourage bigger banks from lending.

"Mom and pop banks pay for FDIC (Federal Deposit Insurance Corporation) insurance. That's valuable to their customers and that is priced into their business model."

Some economists and private sector advocates oppose or are at least skeptical of any fee structure on banks.

"Bank fees are a terrible idea for trying to spur lending," said Jeff Miron, an economist at Harvard University. "It just takes cash away from the bank. That means they have less cash on hand that they can lend out. I think it's a mistake to think there's anything policy can do to spur lending at this point. Banks have plenty of cash available."

Tom Donohue, president of the U.S. Chamber of Commerce, said he doubted the new bank fees would not harm consumers or stockholders, warning fees will reduce bank "profits, the value of their stocks and that means the value of 401Ks (holding big bank stocks)."

"This is not a very good idea," Donohue said.

Miron said the public should be "suspicious" of what appears to him to be retribution against big banks and the likely post TARP bonuses they will soon ladle out to top executives.

"This is bonus season," Miron said. "This is when there's all these news stories about the bankers getting the big bonuses which, of course, annoys the heck out of everybody. But this is the wrong response.  The right response, it's too late for. We should have just let their companies fail back a year and a half ago. The best we can do now is just hold our noses and let it (the bonus process) go through."