In this report, we analyze GAO’s testimony released in advance of the hearing on whether big banks still enjoy TBTF subsidies set later today. We will provide clients with an in-depth report on that session upon its conclusion. GAO found that, while big-bank subsidies have dropped since the crisis, they have not been eliminated in the mind of market participants. GAO did not reach a conclusion about current funding-cost advantages, concluding based on its analysis and other studies that evidence on funding advantages remains “mixed.” Further, adjusting current market data to assume credit risk equivalent to that during the 2008 crisis swings big banks back to a substantive bond-funding advantage. GAO notes the importance of considering regulatory costs in the context of subsidy considerations, but makes clear that its report does not attempt to do so. In our view, GAO’s conclusions perhaps most importantly deny those seeking to recapture what they see as a subsidy later this year; in the absence of a specific number, there is no agreed-upon “subsidy” that could be taxed away as proposed earlier this year by House Ways & Means Chairman Camp (R-MI). The study will also take some wind out of the sails of those who, like Sen. Brown (D-OH), believe big banks enjoy billions in unfair benefits, but not dissuade many seeking not only still to break up big banks, but also to rewrite OLA into a bankruptcy-only regime.
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