Nov 15 - The Independent Community Bankers of America has thanked the Government Accountability Office for releasing the first part of its report on government assistance for bank holding companies. The report details the various government-assistance programs that were used to assist the nation’s largest financial institutions after they ushered in the worst financial crisis since the Great Depression.
“The GAO has taken an important step in investigating a crucial element of the too-big-to-fail problem — the ability of the largest and riskiest institutions to access funding more cheaply than smaller financial firms because they are assumed to have full government backing,” ICBA President and CEO Camden R. Fine said. “The megabanks have every incentive to remain large and complex because of their too-big-to-fail status, despite its negative impact on our financial markets and American consumers. The GAO’s report provides much-needed analysis to help us understand our too-big-to-fail problem so we can eliminate the distortions it imposes on our financial system and economy.”
The GAO report found that at the end of 2008, program use was higher on average for banks and bank holding companies with $50 billion or more in total assets than for smaller financial firms. Further, differences in program use were driven in part by how institutions funded themselves, the report found. For example, while smaller banks relied more on deposit funding, larger bank holding companies relied more on short-term funding markets and widely participated in massive government programs that assisted these markets.
Legislation sponsored by Sens. David Vitter (R-La.) and Sherrod Brown (D-Ohio) and approved by the Senate by unanimous consent late last year asked the GAO to study the economic benefits that too-big-to-fail financial firms receive due to actual or perceived taxpayer support. The GAO report introduces the emergency support programs and examines ongoing reforms to the federal financial safety net and is a helpful reminder of the explicit subsidy given to the TBTFs during the crisis. The second part of the report, which is expected to be released next year, will estimate the actual benefit and the ongoing subsidy that the largest institutions receive because of the public perception that they are too big to fail.
ICBA looks forward to continuing to work with the GAO and Congress to address the too-big-to-fail issue.