The Implicit Government Bank Bailout Subsidy Was Estimated to be as High as $300 Billion In 2011, Three Times that of all U.S Bank Holding Companies Annual Earnings in the Same Year (Yes, You Read That Right)




” If market discipline were to be imposed on TBTF institutions, one would expect it to come from uninsured/unsecured depositors, creditors and debt holders. But TBTF status exerts perverse (unnatural) market discipline on the risk-taking activities of these banks. Unsecured creditors recognize the implicit government guarantee of TBTF banks’ liabilities. As a result, unsecured depositors and creditors offer their funds at a lower cost (accept lower interest rates or higher fees) to TBTF banks than to mid-sized and regional banks that face the risk of failure”. (all italicized text is my own)

“This TBTF subsidy is quite large and has risen following the financial crisis. Recent estimates by the Bank for International Settlements, for example, suggest that the implicit government guarantee provides the largest U.S. BHCs with an average credit rating uplift of more than two notches, thereby lowering average funding costs a full percentage point relative to their smaller competitors”.



“Our aforementioned friend from the Bank of England, Andrew Haldane, estimates the current implicit TBTF global subsidy to be roughly $300 billion per year for the 29 global institutions identified by the Financial Stability Board (2011) as “systemically important.”



*****To put that $300 billion estimated annual subsidy in perspective, all the U.S. BHCs summed together reported 2011 earnings of $108 billion.”.******

….Richard Fisher, former President and CEO of the Federal Reserve Bank of Dallas




“My concerns are not safety and soundness. It is the issue of creating subsidies for individual institutions which their competitors do not have. It is a level playing field issue. Non-bank holding companies or other institutions do not have access to that subsidy, and it creates an unlevel playing field. It is not a safety and soundness issue.”

….Remarks by Chairman Alan Greenspan at the Annual Convention of the American Bankers Association, Boston, Massachusetts, October 5, 1997




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