The Obama Administration is considering imposing a tax on banks to recover the losses incurred by the government on the bailout money provided to financial firms as part of its $700 billion bailout program to rescue the financial system.

The Troubled Asset Relief Program (TARP) by law requires the president to seek ways to recover shortfalls in bailout money from financial institutions. However, the law does not stipulate the process of recovery of the bailout money.

No final decision has yet been taken with respect to the type of fee. Details about the fee on bailout banks are expected to be declared in next month’s budget. We expect this move to help reduce the deficit and lower risky exposures of big banks.

The Obama Administration is considering such a step as the big bailout banks have already repaid their TARP money and are set to pay out large bonuses. Despite the ongoing turmoil in the mortgage market, banks are now in a comfortable position. Revenues have almost rebounded to pre-crisis levels.

Last week, Bank of America Corp. (BAC) said that it is likely to pay bonuses to its investment bankers close to what they received in 2007, before the financial crisis.

Targeting banks to recover the shortfall in bailout money is justified, as they are the major beneficiaries of taxpayer largesse. Most of the bailout loans were provided to financial institutions; they form the backbone of the economy and were the primary victims of the crisis.

Major financial institutions that have already repaid the bailout money include Bank of America, American Express (AXP), Goldman Sachs (GS), Morgan Stanley (MS), BB&T Corporation (BBT), US Bancorp (USB), Wells Fargo (WFC) and Citigroup (C).

The government is already in the process of using the repaid bailout money to create new jobs and cut the nation’s fiscal deficit. Imposition of a fee on banks is expected to further help reduce the deficit.

Zacks Investment Research

1. ($BAC) Bank of America Repays TARP Fund in FullBank of America Corporation (BAC) said on Wednesday that it has repaid the entire $45...
2. (JPM) Details on TARP Cost ReductionThe cost of running the Troubled Asset Relief Program (TARP) has been reduced by $200...
3. (JPM) Treasury to Auction TARP WarrantsAfter almost a year of initiating the $700 billion Troubled Asset Relief Program (TARP) to...
4. ($JPM) Will the Federal Deposit Insurance Corporation Borrow From Banks?About a year ago, during the height of the crisis, the government started bailing out...
5. SunTrust Banks To Repay TARP LoanThe Chief Executive Officer [CEO] of SunTrust Banks Inc. (STI) said on Tuesday that the...
6. (GS) U.S. Treasury Profits from Bailed-Out BanksThe U.S. government has already retrieved about $4 billion in profits from 8 of the...

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