The congressional backlash against American International Group Inc. continued to affect the banking industry Thursday, as the House passed a bill only hours after it had been introduced to constrain executive compensation at firms receiving government assistance.
The legislation, approved in a 328-to-93 vote, would apply a 90% tax rate to bonuses paid by companies that received $5 billion or more under the Troubled Asset Relief Program. That would include Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Goldman Sachs, Morgan Stanley, PNC Financial Services Group Inc., U.S. Bancorp and GMAC LLC.
Though banking industry representatives objected, saying the restrictions would prompt banks to repay government funds early, House Financial Services Committee Chairman Barney Frank promised more penalties are still to come.
"We are now being criticized in the press and by some of the recipients for being too tough on them. I welcome that kind of criticism," Frank said in a speech on the House floor. "This resolution is a beginning of what we will be doing."
The tax bill was passed just a day after the House Judiciary Committee passed a separate measure that would allow the Justice Department to sue to recover "previously excessive payments" by companies that received more than $10 billion in government money. The House is expected to vote on that legislation next week.
Frank also said Thursday that he is working on another bill targeting executive compensation, which he hopes to hold a vote on next week. Details were not released by deadline, but Frank said restrictions would apply "both prospectively and retrospectively."
Industry lobbyists privately expressed horror at how quickly legislation is moving through Congress, but said they had little power given growing populist outrage over bonuses paid by AIG.
Observers said bankers many of whom were encouraged by regulators to take Tarp money would rush to pay it back.
"If you ever wanted an incentive to convince banks to quickly repay Tarp, you have one in this legislation," said Jaret Seiberg, a policy analyst at Washington Research Group.
The legislation passed Thursday applies to individual employees with household income exceeding $250,000 a year. It affects bonuses received after Jan. 1, 2009.
Ways and Means Committee Chairman Charles Rangel, the tax bill's sponsor, said, "the whole idea" that executives of failed companies "should be rewarded millions of dollars is repugnant to everything decent people believe in."
Such anger echoed throughout the Hill, but some Republicans said Democrats had not given enough the legislation thought.
"Do we have to have this political charade of bringing this bill out here? I don't think so," House Minority Leader John Boehner said during floor debate.
"This is a bad bill with bad consequences. We didn't see the bill until last night. Nobody marked it up. No one debated it and nobody understands the consequences of what we are about to do," he added.Still, observers said the bill was headed for quick enactment. A Senate version of the tax bill could be voted on by next week.
"Regardless of whether you are Democrat or Republican, you need to show the voters back home that you are not going to let the big Wall Street banks take large bonuses," Seiberg said.
The industry said it was too early to grasp the full scope of the measures, but they said they were concerned it could push institutions away from the government's rescue efforts.
"This is moving through so fast I don't think anyone has thought through the impact," said Floyd Stoner, the head lobbyist for the American Bankers Association.
Phil Corwin, a partner at Butera & Andrews, said these measures are a signal of the types of restrictions Congress will begin imposing on all Tarp recipients.
"The conclusion to be drawn is if you are a financial institution of any type and have received funds from the government or are considering participating in a program then you are exposing yourself to unquantifiable risk in how the government may intervene to affect your internal operations," he said.
"We don't know what the effect this will have, and Congress doesn't either."
