(Washington, D.C.) – The U.S. Senate tonight approved an amendment to the Senate budget resolution by U.S. Senators David Vitter (R-La.) and Sherrod Brown (D-Ohio) to end federal subsidies for too-big-to-fail mega-banks. The amendment passed by a vote of 99-0.
“This is a really impressive sign that we mean business on ending too-big-to-fail,” Vitter said. “Mega-banks are still receiving special handouts that create an uneven playing field – making it harder for our community banks and credit unions to compete with the mega-banks. Beyond the TARP bailouts, the government has created a belief in the marketplace that the government will provide support to the mega-banks, but our amendment corrects that.”
Vitter and Brown’s amendment will end federal subsidies and funding advantages for megabanks larger than $500 billion.
An FDIC study released in September, 2012 concluded that “the largest banks do, in fact, pay less for comparable deposits. Furthermore, we show that some of the difference in the cost of funding cannot be attributed to either differences in balance sheet risk or any non-risk related factors. The remaining unexplained risk premium gap is on the order of 45 bps. Such a gap is consistent with an economically significant “too-big-to-fail” (TBTF hereafter) subsidy paid to the largest banks.”
An IMF Working Paper also has attempted to quantify the subsidy taxpayers bestowed upon the megabanks. According to the study, before the financial crisis the subsidy “was already sizable, 60 basis points, as of the end-2007, before the crisis. It increased to 80 basis points by the end-2009.”
According to Bloomberg’s calculations, JPMorgan, Bank of America, Citi, Wells Fargo and Goldman Sachs account for $64 billion of the total subsidy “an amount roughly equal to their annual profits.” Bloomberg’s analysis shows that the five biggest US banks are “barely profitable” if they weren’t able to borrow at artificially cheap rates because the market believes they are “too-big-to-fail.”