Big U.S. banks’ funding advantage reduced, could rise in crisis-official
By Emily Stephenson
The biggest U.S. banks’ borrowing cost advantage over smaller competitors appears to have been reduced or eliminated since the 2007-2009 financial meltdown but could return in a crisis, a U.S. government official said on Thursday. Lawrance Evans, director of financial markets at the U.S. Government Accountability Office, said a new report also found that industry participants believe the 2010 Dodd-Frank Wall Street oversight law reduced the likelihood the federal government would bail out big banks in a future crisis. Evans made the statements in planned remarks for a Senate Banking Committee hearing on Thursday afternoon, when the full GAO report will be released. Lawmakers, regulators and bank experts have debated whether the biggest U.S. banks have an advantage because investors believe they would be bailed out in a future crisis. Bank critics say the difference in borrowing costs between large and small institutions amounts to a subsidy for being “too big to fail.” Previous attempts to answer the question of whether bigger banks have lower funding costs than smaller institutions have reached different results. For example, the International Monetary Fund said in April that the subsidy persists but had declined since the crisis. But a study conducted by a consulting firm for The Clearing House, a bank lobby group, found that the bond market advantage for big banks was negligible. Others have argued that the costs to larger banks of complying with the Dodd-Frank law could outweigh any subsidy. A study released on Wednesday by Washington-based Federal Financial Analytics found that the cost of Dodd-Frank to the six biggest U.S. banks was $70.2 billion in 2013.