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Friday, August 1, 2014

GAO Report Inconclusive on Funding Advantage

The Government Accountability Office released a report finding “mixed evidence” of funding advantages for large banks in recent years. The report indicated that large firms saw lower funding costs than smaller banks during the financial crisis but that such advantages “may have declined or reversed.”

The report found that Dodd-Frank-related changes, such as orderly liquidation authority, have adjusted rating agencies’ and investors’ views on whether large firms will be bailed out. “In response to reforms, two of three major rating agencies reduced or removed the assumed government support they incorporated into some large bank holding companies’ overall credit ratings,” the report said.

ABA President and CEO Frank Keating commented:
We have always believed that no bank — or company — should be too big to fail. Today’s report confirms our strong belief that the variety of recent measures in statute and regulation are having their intended effect, and that any perceived cost of funding advantage for large banks is quickly becoming a thing of the past.

Keating noted that Dodd-Frank-related compliance costs “that go beyond any perceived regulatory funding advantage,” including higher FDIC premiums, capital and liquidity standards, tougher stress tests and the Volcker Rule. Keating said:
Policymakers cannot ignore the dramatic impact that Dodd-Frank requirements have already had on both this issue and the ability of banks of all sizes to serve their communities.

Read the report.

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