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March 27, 2014

NY Fed finds big banks enjoy taxpayer ‘subsidy’

“The largest US banks have benefited from a significant funding advantage over their smaller peers, according to new research from the Federal Reserve Bank of New York that is likely to invigorate a heated debate over the future of “too-big-to-fail” lenders.

“The amount of taxpayer “subsidy” enjoyed by large banks, thanks to an implicit assumption that they will be bailed-out by the US government, has become a controversial topic as regulators and lawmakers attempt to reform the banking system in the wake of the financial crisis.

“According to a paper published on Tuesday by João Santos, a New York Fed vice-president, the biggest US banks enjoyed an extra $60m-$80m of cost savings per average new bond sale over their smaller competitors until 2009.

“The paper is part of a wide-ranging survey of “large and complex banks” that will be closely read by financial industry participants who are keen for hints about the future direction of banking regulation. While new rules such as the sweeping Dodd-Frank financial reform are supposed to limit future bank bailouts, there is still a substantial movement among some authorities to “break up” the largest institutions.”

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Read full Financial Times article here.

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