WASHINGTON D.C. (
) -- Obama has spoken.
Banks with more than $50 billion in assets will be required to pay the much-anticipated annual tax of 15 basis points on covered liabilities (assets excluding FDIC-insured assets and Tier 1 capital).
The Obama White House bank tax proposal has been one of the bigger news stories of the week, and Obama's stern remarks on Thursday morning chastising the big banks for the "business as usual" approach of big bonuses and big risks left little doubt that the White House is not aiming to play nice with Wall Street.
Now we know the shape, size and scope of the bank tax, but will it really have any teeth?
This week, we asked
readers in the days leading up to Thursday's announcement what kind of bank tax they though would be the best option. What's more, we asked readers whether they thought the bank tax -- in whatever form -- would have any teeth?
Survey takers made it clear by a wide margin that President Obama's bank tax will have as many teeth as the resident goon on an NHL hockey team.
Approximately 60% of survey takers said that "any and all attempts to assess a bank fee will be toothless."
A tax of 15 basis points on covered liabilities is not insignificant. In an example provided by the White House concurrent to President Obama's remarks, a bank with $400 billion in covered liabilities would be on the hook for a bank tax payment of $600 million. That example is not even representative of the biggest banks, which might be hit with a tax in the range of $1.5 billion based on their current level of assets.
That $600 million to $1.5 billion range must at least equal two or three Wall Street bonuses.
In fact, President Obama's sternest remarks during the announcement of the bank tax related to bonuses. President Obama not only chastised the banks several times for the "business as usual" attitude, and harped on big bonuses at firms that needed to be rescued by federal money, but advised banks to roll back bonuses as a way to pay the bank tax.
JP Morgan Chase
CEO Jamie Dimon said on Wednesday that any attempt to assess a bank tax would most likely just result in banks passing the cost on to customers. Dimon sounded like a schoolyard bully telling the poor schoolyard masses that if a freedom fighter appeared on the scene to rescue them from his iron-fisted rule, he was just going to steal more of their milk money -- maybe at a cost of 15 basis points worth of milk per schoolyard inhabitant.
Dimon's less-than-enlightened public relations point was: the masses will suffer, not my bank or my top peoples' bonuses.
One can expect that Dimon won't be the lone schoolyard bully, but will be joined by a bevy of schoolyard thugs in finding clever ways to route the bank tax around their beloved bonuses --
Bank of America
are sure to make for good milk-money thieves also.
The big banks and JP Morgan could not have been in a good mood as the week ended either, with JP Morgan's earnings including many line items that disappointed the markets and sent equities down.
Bank industry lobbyists were repeating Dimon's warning about passing along the costs to customers in the wake of Obama's announcement. They were also arguing that the bank tax unfairly targeted the only group of companies to actually pay back the lion's share of what they received in the federal bailout.
There is some truth to that statement, though it also misses the point that while Obama said the bank tax is ostensibly being sought to pay down the federal deficit, it also would serve as a de facto check on the level of risky assets being held by banks, since the bank tax formula is based on the level of non-Tier 1 and non-FDIC assets.
There is also room for disappointment with President Obama. While Obama talked a big game invoking the "business as usual" rhetoric, placating populist rage by siding with Main Street against Wall Street, in saying that he urged banks to roll back bonuses to pay the new tax, he stopped short of showing the fight that the U.K. government has shown in actually mandating a big hit on big bank bonuses.
The disconnect between President Obama's remark that banks should roll back bonuses to cover the tax, and Dimon's warning to Washington that, in the end, the tax would roll over to customers -- i.e. the American public -- may explain why survey takers so heavily indicated in the poll that the bank tax will be toothless.
Unless President Obama walks the walk of his tough bonus talk -- instead of just urging the banks to roll back bonuses but not requiring them to do so -- the end result may in fact be a toothless bank tax.
Or in the least, an absurdist comedy version of a bank tax: the federal government taxes the big banks to placate populist rage, which still lingers from the federal bailout, paid for by American tax dollars. The banks turn around and pass on the tax cost to customers in the form of cleverly spread out, accounting-based customer gouging, nickle-and-diming the American public into paying a second time for the federal bailout it paid for the first time around.
Paying $600 million a year in a bank tax might be significant, but it might just be a lot of stolen milk money as opposed to rolling back of Wall Street bonuses, the survey response suggested.
On the other hand, it's not clear that at $1.5 billion annually in a bank tax, the big banks would be able to pass the entire cost on to customers, even nickle-and-diming customers to death, especially during an era when bank fees have been coming down -- sometimes by way of federal mandate, in the case of credit cards.
The threats from Dimon and the banking industry about passing the tax along to customers could therefore also be toothless, no more than an attempt to scare the public into not providing Obama with enough support to get the bank tax through Congress.
What can the bank customer base of the U.S. public do about it? There is probably no use in crying over milk yet to be stolen.
Mind you, the specific form that the bank tax would take was ostensibly the reason for our poll, but the response that any and all tax forms would be "toothless" dwarfed any other response.
conducted a poll earlier this year at the time of the furor over the "trader tax," we asked readers what kind of levy they would prefer to a tax on trading profits. At that time, survey takers showed considerable support for
the exact type of bank fee that President Obama announced Thursday -- a fee based on the risk level of bank assets. It finished as the second-most-popular choice in the earlier poll, with 30% of votes, just behind the proposal for a law requiring banks to maintain a higher level of Tier 1 capital.
However, by this week, knowing that the bank tax was coming, survey takers moved far away from showing support for any of the measures.
Notable in the results, though, was the fact that in second place, behind the 60% of survey takers who believe the bank tax will be toothless, were 19% of survey takers who said that a tax on senior executive compensation would be the best method.
That's most likely a lot of online clicking from White House technology underlings -- or a healthy portion of populists making their voices heard on
The idea for a fee related to the risk level of assets, which in the earlier poll had proved popular, finished in third place this time, with 10% of survey-takers thinking it would be the best option.
Virtually no one wanted to see taxes on net profits or an excise tax, which garnered 8% and 4% of survey taker votes, respectively.
So American public be forewarned: the banks are being taxed, a win for populist rage against Wall Street, but be careful what you wish for. Remember, you already paid for the federal bailout of corporate America once.
-- Reported by Eric Rosenbaum in New York.
>>Trader Tax Loathed by the Street
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