Cash isn’t the only method government has for bailing out an industry that ought to be left to its own fate, as the latest Bloomberg Businessweek explores.
On June 28, Richard Fisher, president of the Dallas Federal Reserve, said that the markets assume larger banks are too big to let fail. That much we knew. Five banks—JPMorgan, Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), and Goldman Sachs (GS)—held more than $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to the Federal Reserve.
Fisher also pointed out that this assumption lowers borrowing costs for those banks, which he called an “unfair subsidy.” He didn’t name names, but we can. Even better, we can give you an idea of the size of this subsidy. By one estimate, between 2007 and 2010, simply being too big to fail saved America’s biggest banks a combined $120 billion in lower borrowing costs. Citigroup saved some $50 billion. And even with its fortress balance sheet, JPMorgan saved $10 billion thanks to its size and importance.
Gee, it’s hard to imagine that government policy could have such malign unintended consequences.
