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Tuesday, March 12, 2013

Policy Brief Disputes Large Bank Subsidy Concept

A recent estimation that large banks enjoy a taxpayer subsidy worth $83 billion is based on flawed methodology and stale, unreliable financial market data collected before Congress passed the Dodd-Frank Act, ABA and four other trade groups said in a policy brief released yesterday.

The policy brief pointed out that an International Monetary Fund analysis completed in 2010—also before Dodd-Frank’s passage—estimated that large banks’ cost-of-funding advantage was only “about 20 basis points on average.”

“Several more recent studies indicate that, since the passage of Dodd-Frank, any cost-of-funding advantage has been dramatically reduced or even eliminated,” the brief said. “In fact, two recent studies conclude that markets are now imposing a cost-of-funding premium on large banks of up to 35 basis points.”

For example, one recent study of yield spreads on subordinated notes and debentures issued by the 19 largest banking companies before and after Dodd-Frank showed that their funding advantage has been reduced by 76 percent since Dodd-Frank’s passage, the policy brief explained.

Read the policy brief.

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