Too-Big-To-Fail Banks Have Raked In $102 Billion In Subsidies Since 2009: Report

A 'Too big to fail' sign is held up by Occupy Wall Street movement demonstrators at Union Square in New York, U.S., on Tuesda
A 'Too big to fail' sign is held up by Occupy Wall Street movement demonstrators at Union Square in New York, U.S., on Tuesday, May 1, 2012. Occupy Wall Street demonstrators took to the streets in May Day protests from New York to California, picketing banks in Oakland with helicopters overhead and sending a singing 'Guitarmy' to Manhattan's Union Square. Photographer: Victor J. Blue/Bloomberg via Getty Images

America's biggest banks want you to believe that they get no special advantage, no subsidies, from being too big to fail. And yet people keep finding evidence of those subsidies.

The latest is World Bank economist Deniz Anginer, in a study for Bloomberg Markets magazine. Anginer estimates that the six biggest U.S. banks have saved $82 billion in borrowing costs since 2009 because investors believe the government will never let them fail and thus don't charge as much to lend them money as they do smaller banks. The report will be published in the June issue of the magazine.

Together with dirt-cheap government borrowing programs, Bloomberg estimates these banks -- JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley -- have saved $102 billion since 2009 because of their size advantage.

This estimate is actually a little smaller than the $83 billion-per-year subsidy that Bloomberg View, Bloomberg's op-ed arm, touted earlier this year. In fact, several studies have come up with different numbers for the subsidy, evidence of just how tricky it is to measure.

Some observers argue that the subsidy might not exist at all. That argument is the one the big banks prefer, predictably, because they would like not to be made smaller, if it's all the same to everybody. In fact, they have paid for their own research arguing they have no subsidy.

U.S. policy makers believe there is a subsidy, though they are loath to quantify it. Federal Reserve Chairman Ben Bernanke in February confessed to Sen. Elizabeth Warren (D-Mass.) that the subsidy exists, although he disagreed with the $83 billion per year estimate. And Fed Governor Jeremy Stein last month agreed that a subsidy exists and is a problem.

Ending the subsidy and the possibility that taxpayers will have to bail out a big, failing bank is the aim of the bill introduced last month by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.). That measure would force the biggest banks to hold more capital.

Mortified, the big banks have joined forces and hired some political helpers, including Republican Tony Fratto and Democrat Stephanie Cutter, to push back against the momentum for breaking them up, the Wall Street Journal wrote earlier this week.

Hilariously, big bank officials briefly considered pushing smaller community banks -- which don't enjoy the subsidy that the big banks get and are thus at a competitive disadvantage -- to help them with the pushback, the WSJ reported. Wisely, they dropped the idea.

Update: Fratto points out via Twitter that Bloomberg Markets' subsidy number contradicts the earlier, larger Bloomberg View estimate. He also points out that Bloomberg's new analysis shows the size of the subsidy shrinking each year.

"This settles it -- any implied big bank subsidy is rapidly evaporating," he wrote.

"Bloomberg is proving that any subsidy talk should be dropped," he tweeted a little later.

Watching Fratto in action, Graham, Fisher & Co. bank analyst Joshua Rosner tweeted:



Bankers Who Want To Break Up Big Banks