WASHINGTON, D.C. – U.S. Sen. Sherrod Brown (D-OH) and David Vitter (R-LA) today announced that they will be offering an amendment to the Senate budget resolution to end federal subsidies for too-big-to-fail mega-banks.
“It’s time we stop subsidizing risky Wall Street practices. We’ve seen how too big to fail is also too big to manage, too big to regulate, and too big to jail,” Brown said. “Yet the biggest Wall Street megabanks are actually rewarded with a government guarantee by virtue of their size. Ending too big to fail is about protecting taxpayers and our economy, and ensuring a truly competitive market for mid-sized banks, community banks, and credit unions.”
“Too-big-to-fail is alive and well, and at the expense of taxpayers,” Vitter said. “These special handouts 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.”
Vitter and Brown’s amendment will end federal subsidies and funding advantages for megabanks larger than $500 billion and prohibits a bank tax or assessment with language stating that the subsidy is eliminated, "without raising revenue."
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.”
Together, Brown and Vitter have successfully pressed the Government Accountability Office (GAO) to conduct a study of the economic benefits that the “too-big-to-fail” megabanks receive as a result of actual or perceived taxpayer funded support. They’ve also urged the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) to simplify and strengthen capital rules for banks.