March 04,2010

Grassley Releases CBO Analysis of Proposed Bank Fee Showing Banks Would Pass Fee on to Customers, Employees, Investors

M E M O R A N D U M

To: Reporters and Editors
Re: CBO analysis of President’s proposed fee on financial institutions
Da: Thursday, March 4, 2010

Sen. Chuck Grassley today received an analysis he requested from the nonpartisanCongressional Budget Office of President Obama’s proposed fee on financialinstitutions. CBO said, “The cost of the proposed fee would ultimately be borne tovarying degrees by an institution’s customers, employees, and investors, but the preciseincidence among those groups is uncertain. Customers would probably absorb some ofthe cost in the form of higher borrowing rates and other charges, although competitionfrom financial institutions not subject to the fee would limit the extent to which the costcould be passed through to borrowers. Employees might bear some of the cost byaccepting some reduction in their compensation, including income from bonuses, if theydid not have better employment opportunities available to them. Investors could bearsome of the cost in the form of lower prices of their stock if the fee reduced theinstitution’s future profits.”

Grassley made the following comment on the CBO analysis.

“A lot of analysts have said banks would pass the fees onto their customers. TheCBO analysis confirms this and adds a lot of points for consideration from a verycredible source. Before this proposal moves forward, Congress needs to understand theconsequences, good or bad.”

The CBO analysis is posted with this document at finance.senate.gov. Grassley’soriginal inquiry to CBO follows here.

For Immediate Release
Friday, Jan. 15, 2010

Grassley Seeks CBO, JCT Analysis of President’s Proposed Bank Fee

WASHINGTON – Sen. Chuck Grassley, ranking member of the Committee onFinance, today continued his effort to ensure transparency and oversight of the financialbailout, asking the non-partisan Congressional Budget Office and Joint Committee onTaxation for an analysis of President Obama’s proposed fee on financial institutions.“We need to make sure small businesses and John Q. Public don’t get another rawdeal,” Grassley said.

Grassley wrote in his request letter, “I agree with the goals the Presidentarticulated. We in Congress have a responsibility to ensure the legislative product carriesout the goals the President set. Before Congress is asked to vote on legislation imposingsuch a fee, it will be important to understand the potential impact on consumers, thecriteria for applying the fee to some entities and not others, and the implications for thesecurity and stability of these institutions.”

Grassley was an advocate for creating a special inspector general for the TroubledAssets Relief Program (TARP) to try to hold the program accountable and co-sponsoredlegislation to strengthen the ability of the special IG to conduct oversight after the TARPprogram changed its original mission. Grassley also battled the White House after it triedto subject requests of the special IG to the red tape of the Paperwork Reduction Act.

The text of Grassley’s letter today follows.

January 15, 2010

Douglas W. Elmendorf
Director
Congressional Budget Office
Ford House Office Building, Fourth Floor
Washington, DC 20515

Thomas A. Barthold
Chief of Staff
Joint Committee on Taxation
1015 Longworth House Office Building
Washington, DC 20515

Dear Dr. Elmendorf and Dr. Barthold:

There is widespread agreement with the President among taxpayers and members ofCongress that financial institutions should repay every dime of government money theyhave received for financial stability. Yesterday, the President proposed a “FinancialCrisis Responsibility Fee” to help facilitate that repayment. I agree with the goals thePresident articulated. We in Congress have a responsibility to ensure the legislativeproduct carries out the goals the President set. Before Congress is asked to vote onlegislation imposing such a fee, it will be important to understand the potential impact onconsumers, the criteria for applying the fee to some entities and not others, and theimplications for the security and stability of these institutions. I am writing to requestthat the Congressional Budget Office and the Joint Committee on Taxation provide ananalysis addressing the following questions about the Obama Administration’s proposed“Financial Crisis Responsibility Fee”:

1. Will the fee get passed on to consumers in any manner? If so, how will it getpassed on to consumers?

2. Will the fee reduce the amount of bonuses paid by the financial institutions thatare subject to the fee?

3. What impact will the fee have on the availability of credit generally?

4. What impact will the fee have on the availability of credit for small businesses?

5. Are the financial institutions that the fee is imposed upon the same ones thatcaused the estimated losses under TARP?

6. Are there entities that caused the estimated losses under TARP that are not subjectto the fee? If so, which entities are they and what amount of the estimated TARPlosses did each entity cause?

7. Are there entities that will be subject to the fee that did not cause the estimatedlosses under TARP? If so, which types of entities are these?

8. Does the fee account for any additional losses from TARP that the Administrationmay generate as a result of future disbursement of TARP funds?

9. The Administration has estimated that unrecouped losses from TARP could be,absent the proposed Financial Crisis Responsibility Fee, $117 billion. a) Doesthis amount include the cost of IRS Notices that alleviate the tax burden on TARPrecipients that otherwise would have been imposed by Internal Revenue Codesection 382 (i.e., Notices 2008-100, 2009-14, 2009-38, and 2010-2)? b) Shouldan accounting of TARP costs include the costs of these IRS Notices? c) What isthe cost of these IRS Notices?

10. What impact will this fee have on the United States’ Gross Domestic Product?

11. Will the fee increase the security of the affected financial institutions, thusdiminishing the need for any future bailouts?

12. Are there currently any federal or state taxes based on asset value?

13. Does the Administration’s cost estimate include the cost of administration?

14. What is your estimate of the cost of the TARP program to date, including the costof administration?

15. Do you estimate that all TARP losses will be repaid by 2013?

16. What effect will this fee have on the administerability and complexity of the taxsystem?

17. What is your estimate of the value of the financial assistance provided by theFederal Reserve since the enactment of TARP and what is the potential amount oflosses associated with this assistance?

18. Does the fee recoup any potential losses as a result of the Federal Reserve’sassistance to various financial institutions?

Thank you in advance for your assistance. Please do not hesitate to contact Jim Lyons at(202) 224-4515 with any questions.

Sincerely,

Charles E. Grassley
Ranking Member
Senate Finance Committee