Obama Considers Raising Fees on Larger Financial Institutions

By Rebecca Christie

Aug. 14 (Bloomberg) -- President Barack Obama’s administration is considering raising fees on larger financial firms to help cover costs of new regulation by an agency set up to safeguard consumer financial products.

The proposed Consumer Financial Protection Agency “will be funded by fees, appropriations, and other transfers,” Treasury spokesman Andrew Williams said yesterday. Firms with assets of more than $10 billion “will pay more for prudential and consumer supervision, while community banks will not pay any more for supervision than they do today. Non-banks will be assessed for the first time.”

The plan marks a further burden on banks such as Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. that may be subjected to more government fees, aimed at shielding consumers and buffering taxpayers from excessive risk taking. The proposal follows Obama’s plan to ensure systemically important financial institutions pay for costs of additional supervision.

The administration wants firms deemed too big to fail to be liable for costs of any government assistance. Collecting larger fees on major banks to fund the proposed consumer products agency isn’t part of the administration’s 600-plus page proposal to overhaul financial regulation, Williams said.

Led by chairman Sheila Bair, the Federal Deposit Insurance Corp. has proposed slapping fees on the biggest bank holding companies to the extent that they carry on activities, such as proprietary trading, outside of traditional lending. That idea goes beyond the Obama administration’s regulation-overhaul plan, which would have the Fed adjust capital and liquidity standards for the biggest firms, without any pre-set fees.

Two-Tiered Structure

A two-tiered fee structure for consumer protection would levy higher fees on firms with more than $10 billion in assets, while fees for smaller institutions would be lower, an administration official said yesterday on the condition of anonymity because the proposals have not been announced.

Michael Barr, the Treasury’s assistant secretary for financial institutions, said the Obama administration is pleased with the debate on Capitol Hill over the proposals, even though they have yet to be embraced wholesale by lawmakers.

“It is not surprising that it’s generating debate,” Barr said in an interview this week. “It would have been crazy to think that we’d send it up and people would sing ‘Kumbaya’ and hold hands and pass it in five minutes. The entire conversation on the Hill right now, on regulatory reform, all revolves around people fighting about our plan.”

While the Treasury already has proposed some kind of assessment on financial institutions to cover its costs, the legislation does not specify exactly who would be assessed or how.

Fees Assessed

“The agency shall recover the amount of funds expended by the agency under this title, through the collection of annual fees or assessments on covered persons,” said the proposed legislation, released on June 30.

Regulators have each opposed some aspect of the Obama plan. Fed Chairman Ben S. Bernanke has sought to retain authority for protecting consumers of financial products after the administration sought to create a new agency for the task.

Bair and Securities and Exchange Commission Chairman MarySchapiro have favored a council of agencies -- rather than the Fed -- to have powers to rein in risk-taking at financial firms so large or interconnected their failure would threaten the system.

Geithner, in a July 31 meeting aimed at cracking down on dissent, used strong language with the regulatory heads, reflecting concern at the fate of the administration’s proposals, a person briefed on the matter said on condition of anonymity.

Banks and other financial institutions have reported about $1.6 trillion in credit losses and writedowns worldwide since the global credit crisis began in 2007.

Consumer Oversight

As proposed, the Obama administration’s consumer regulator wouldn’t have the power to make major changes to the financial landscape, said William Black, a University of Missouri law and economics professor in Kansas City and a former U.S. bank regulator. That’s because the Obama administration plan calls for keeping broad-based, consumer-oriented oversight separate from bank examination and regulatory enforcement, he said.

“If it had been in place, it wouldn’t have stopped the last crisis,” Black said yesterday in a telephone interview. “This is another example of creating an ivory tower divorced from the day-to-day examination findings.”

To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net