Financial firms to shell out billions under Dodd-Frank law

Thursday - 4/19/2012, 10:17am EDT

Cady North, political analyst, BGov

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Billions of dollars in fees, assessments and potential penalties will hit banks and other financial institutions over the next decade as a result of the Dodd-Frank law.

Bloomberg Government analyzed how much the financial institutions will have to shell out in its report, "Financial Firms to Pay $60 Billion in Dodd-Frank Fees by 2022." Cady North, a policy analyst, discussed the report's findings on the Federal Drive with Tom Temin and Emily Kopp. Listen to the interview by clicking the link above.

Report Executive Summary:
(Written by BGov)

The Dodd-Frank law introduced and increased fees that the financial services industry will pay to cover the cost of enhanced regulations, programs to help prevent future crises, and losses the government incurred during the financial crisis that began when credit markets froze in 2007. Some of the fees and assessments have already been implemented, and many are yet to come. The fees are often based on a company's asset size, so their impact will vary by institution. Bloomberg Government reviewed the Dodd-Frank law for references to fees and assessments, and analyzed reports from the Congressional Budget Office and White House budget documents for details on how these billions in charges will affect companies. This study finds:

  • About $5 billion in fees and assessments will be collected during the next 10 years to create penalty programs, repay the costs of the Financial Stability Oversight Council and the Office of Financial Research and the Federal Reserve's expense of providing additional oversight to systemically important financial institutions. Some of these fees are already being collected; others will be collected once agencies finish writing rules.

  • About $55.6 billion in deposit insurance assessments could be collected during the next 10 years, according to Bloomberg Government estimates. This includes $47.9 billion to rebuild the deposit insurance fund, which experienced losses during the financial crisis. It also includes $7.7 billion to increase the fund's reserve ratio from 1.15 to 1.35 percent of insured deposits as required by Dodd-Frank. These costs could be higher if bank failures are greater than expected.

  • Between $16 billion and $29 billion in fees and assessments would be collected only if there is a financial crisis.

The fees and assessments that would be assessed in a crisis may be higher or lower, depending on the severity of the crisis.

For instance, financial companies would pay the expenses of the orderly liquidation fund, which would cover the cost of winding down failed financial institutions, estimated by the government to be between $6 billion and $19 billion in the next 10 years. More failures would create more fees for the surviving institutions.

Another example is the "emergency financial stabilization program" that could provide billions of dollars in financial guarantees to banking institutions. The assistance would be paid for by fees on the recipients. While no estimates have been provided by the government for this program, a similar Federal Deposit Insurance Corp. initiative, the temporary liquidity guarantee program, has raised more than $10 billion in fees from the financial industry since 2008.

If Congress chose to create two programs proposed by President Obama, the financial industry would face up to $65 billion more in fees. This includes the $61 billion "financial crisis responsibility fee" and a $3.5 billion user fee to pay for the Commodity Futures Trading Commission.

The Office of Management and Budget is expected to release a report in April 2012 that may provide further detail and updated estimates of user fees and assessments in Dodd-Frank.1 Until then, the ranges provided in this study use current government forecasts and estimates by Bloomberg Government. Actual fees could be higher or lower than those projected, depending on the severity and timing of any future financial crisis.

(Read the full Bloomberg Government study, ""Financial Firms to Pay $60 Billion in Dodd-Frank Fees by 2022". BGov.com is a paid site and requires a subscription for access.)