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April 10, 2014

US banks push back against ‘too big to fail’ funding assumptions

“The banking industry is fighting back against recent studies showing the largest companies still enjoy funding advantages because of the perception they are “too big to fail”, which assumes a government bailout in a crisis.

“The Clearing House Association, a US bank trade group representing JPMorgan Chase, Citigroup, Bank of America and other institutions, on Thursday released the findings of an independent study it commissioned, which showed that funding advantages for the largest banks had disappeared by 2013.

“The differing views on whether too big to fail still exists remains a controversial issue, five years after the financial crisis. Bank critics, including some US lawmakers, use too big to fail studies showing continuing subsidies as reasons to push for greater capital requirements or a break-up of the biggest banks.

“The latest study, conducted by consultancy Oliver Wyman, largely attributed the disappearance of the funding advantages for the largest banks to increased regulation, such as higher capital requirements, which has reduced the perception of too big to fail. The research showed that the cost-saving advantage of the largest banks in bond sales over their smaller peers was at 137 basis points in 2009, but that fell to 8 basis points in 2013.”

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Read full Financial Times article here.

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