Large Banks Get 'Too Big to Fail' Subsidy in Crisis

GAO report finds the largest banks have more market advantage over smaller competitors in times of financial crisis than in economic boom times.

The largest U.S. banks enjoyed lower funding costs than smaller rivals during the 2008 economic crisis although that advantage has declined or reversed in recent years, according to testimony from a government watchdog.

A study by the Government Accountability Office (GAO), to be released in full later today, comes after two years of congressional and industry debate over whether large banks continue to get what has come to be known as a too-big-to-fail subsidy despite regulatory changes. Senators Sherrod Brown, a Democrat from Ohio, and David Vitter, a Louisiana Republican, requested the report in January 2013 and have scheduled a Senate Banking subcommittee hearing on it today.

Rob Nichols, president of the Financial Services Forum, a trade group representing CEOs of the largest financial firms, said any subsidy results mostly from investors’ preference for stability, diversity, and liquidity of the large banks.

“The GAO report confirms what we have seen in many recent studies: any cost-of-funding differential large banks once had has been dramatically reduced if not eliminated,” Nichols said in a statement. “Any very small difference remaining is consistent with cost-of-funding differentials seen in larger businesses across all sectors of the economy.”

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