Consensus Is Elusive on TBTF, Big-Bank Subsidies

By Donna Borak, Victoria Finkle & Joe Adler

Banking analysts, former regulators, lawmakers, banking industry representatives and top academics spent more than an hour and a half debating how best to resolve the issue of “too big to fail” on Tuesday, and came away with no easy solutions. Some lobbied for a bill expected to be introduced today by Sens. David Vitter and Sherrod Brown — or perhaps even tougher measures — while others argued that the Dodd-Frank Act must be given time to be implemented. Indeed, the conversation, hosted by American Banker and Federal Financial Analytics, covered the gamut, from whether big banks still receive a subsidy for the perception they are “too big to fail,” to the exact impact the Brown-Vitter bill would have if enacted into law. Following are the key takeaways: More data is needed on the alleged subsidy for big banks. Do banks still have an advantage because of the perception they are too big to fail and, if so, how big is it? That’s seems to be the $83 billion question. Karen Shaw Petrou, managing director of Federal Financial Analytics, said in an interview after the roundtable that that study may turn out to be critical when lawmakers haggle over the U.S. budget. “The subsidy number will drive the September budget debate,” she said. “Whatever that number is, there will be a strong vote to recapture the subsidy through a user-charge.”