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October 10, 2013

The Big-Bank Subsidy

The debate on very large financial institutions has reached an important moment. At the instigation of Senators Sherrod Brown, Democrat of Ohio, and David Vitter, Republican of Louisiana, the Government Accountability Office is assessing the extent to which big banks and others receive advantages because they have implicit backing from the government.

The stakes are high, as a strong report from the G.A.O. could influence policy. Not surprisingly, representatives of the big banks are pushing back as hard as they can on the notion that they receive subsidies of any kind.

So far, however, this is not going well for the big banks – as is made clear in the papers presented at a conference earlier this week at New York University. (I did not attend the conference, but I have reviewed the written material and talked to people who were there. These materials are now on the Web site of the university’s Salomon Center.)

A large amount of implicit – and explicit – government support for some big companies was an undeniable feature of the financial crisis as it developed in fall 2008 and early 2009. For example, Goldman Sachs was helped greatly by being allowed to become a bank holding company in September 2008, as this allowed greater access to funds from the Federal Reserve.”


Read Simon Johnson’s full Economix blog post here 



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