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From Banking and Finance Law Daily, February 9, 2016

White House budget calls for ‘financial fee’ and GSE reform

By John M. Pachkowski, J.D.

Among the items in the fiscal year 2017 budget released by the White House, there is a provision calling for a “financial fee” as a means to increase receipts for the federal government. Also, the budget calls for reforms in the housing finance system, specifically the winding down of Fannie Mae and Freddie Mac.

Financial fee. The financial fee provision is part of the budget’s theme of “Meeting Our Greatest Challenges: Opportunity for All” that addresses economic insecurity and seeks to provide a “simpler, fairer, and more efficient tax system.”

Specifically, the budget would impose a new fee on large, highly-leveraged financial institutions. This seven basis point fee would be assessed on the liabilities of the roughly 100 firms with assets over $50 billion; and is expected to raise $111 billion over 10 years.

According to an Analytical Perspective on Governmental Receipts, the term “financial institution” includes not only U.S. and foreign banks, but also bank holding companies and “nonbanks,” such as insurance companies, savings and loan holding companies, exchanges, asset managers, broker-dealers, specialty finance corporations, and financial affiliates.

The Analytical Perspective also noted that the financial fee “is intended to discourage excessive risk-taking by financial firms, who were key contributors to the recent financial crisis. The fee would also satisfy the statutory requirement for the President to propose a means to recoup the net costs of assistance provided through the Troubled Asset Relief Program.”

GSE winding down. The winding down of Fannie Mae and Freddie Mac is part of the budget’s call for “Leveling the Playing Field through Wall Street Reform” and to “finish addressing the weaknesses exposed by the financial crisis.” The budget noted that the Consolidated Appropriations Act, 2016 reinforced the need to enact comprehensive reform.

Also, an Analytical Perspective on Credit and Insurance noted that the “Administration will continue to work with Congress to pass comprehensive reform, centered on several core principles: require more private capital in the system; end the Fannie Mae/Freddie Mac duopoly business model in order to improve system stability and better protect taxpayers; ensure broad access for all creditworthy families to sustainable products like the 30-year fixed rate mortgage in good times and bad; and help ensure sustainable rental options are widely available.”

Companies: Fannie Mae; Freddie Mac

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