Definition of Financial Crisis Responsibility Fee

Financial Crisis Responsibility Fee was a scheme introduced by President of United States Obama in 2010 during the high time of recession.

Its aim is to recover taxpayer’s losses on TRAP (Troubled Assets Relief Program) and to make it sure that these losses do not fall on the individual public but on financial industry players. It requires the financial industry to pay back the said extra ordinary benefits. It was expected to stabilize the economy of the country.

The proposal faced criticism and favoritism both at the same time hence faced mixed reviews.

Brief Explanation of Financial Crisis Responsibility Fee

On 2010 just after the launch of program an announcement was made by the administration in order to justify the tax imposition stating the following

“Excessive risk undertaken by major financial firms was significant cause of the recent financial crisis…The fee would… provide deterrent excessive leverage for the largest financial firms”

The proposal had the following main points:

• It demanded financial institutions to pay back the extra ordinary benefits achieved
• It is levied on the financial firms with more than $ 50 billion under their consolidation of assets.
• Largest firms took the most debt and hence the heavier recovery burden is expected from these firms.
• Over 60 % of the revenue is expected from merely 10 big financial institutions.
• It was a 10 years program however President Obama made it accomplished three years earlier than its deadline.

(TRAP Troubled Asset Relief Program was itself introduced in 2008 and the United States Government proposed to purchase non liquid, toxic and difficult to value assets from bank and Financial institutions. Approximately US Dollar 700 billion of expenditure was authorized however this amount was reduced to $ 475 billion in 2010.)