US banks protest over Obama's windfall tax plans

Wall Street is gearing up to oppose a windfall tax by the Obama administration, designed to head off public fury over big bonus payouts to staff at bailed-out investment banks.

White House officials floated the proposal in response to headlines about bumper bonuses, and promised to submit new legislation for a "fee" that would help recoup bailout losses and pay down the ballooning US government debt.

In the absence of details of how a tax might be imposed, and how much it might raise, Wall Street lobbyists said the proposal was premature, while others claimed its early imposition could derail the recovery in the banking sector.

The White House said the fee could be modelled on proposals in the September 2008 bailout legislation, which set aside $700bn to help recapitalise the banking system and said that the president should propose ways to recover any losses faced by the taxpayer by late 2013. However, indications are that the fee could be levied as early as next year, since revenues from it are expected to be included in the next US budget proposal.

"Current law doesn't trigger this tax proposal for another four years," said Scott Talbott, chief lobbyist for the Financial Services Roundtable, an industry group for some of the largest financial firms, who put legislators on notice that Wall Street would be poring over the details of any tax.

"We look forward to seeing the details of the complexity of the formula, of who it is applied to and what the assessment is based on and when it is applied."

Investors blamed the tax proposal for sharp falls in bank shares yesterday, with banks also facing a shake-up in the way the Federal Deposit Insurance Corporation levies its fees, which pay for the industry's deposit insurance scheme. The FDIC voted yesterday to propose charging higher fees to banks whose compensation practices it believes contribute to excessive risk-taking.