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CPBJ Extra Blog

Thinking of 'too big to fail' as a subsidy, big bank profits become mostly welfare

By - Last modified: February 25, 2013 at 9:26 AM
Brent Burkey
Brent Burkey

I don't know if there are many issues out there that could get Occupy participants, community bankers and haters of big government alike to sing “Kumbayah” together in the park.

But this just might be one of the few. At least it should be.

According to a recent rundown from Bloomberg — hardly a bastion of far left-wing philosophy — four of the top five banks in the country would be barely profitable compared with now or in negative territory if you take away a key U.S. "subsidy."

If this were an official subsidy enacted by Congress, we could call it the Too Big To Fail Act.

I mean, if Congress could ever actually do anything, it would be called the Too Big to Fail Act.

Basically, according to a cited study, the assumption that really big banks will just get bailed out if they go off the rails reduces their borrowing rates for doing business by about 0.8 percent.

And all U.S. taxpayers need to do is pump hundreds of billions of dollars now and again into massive financial system bailouts, reinforcing the perception that the safety net will always be there.

But take away that advantage as applied to all of an institution's liabilities, and what would it mean for their bottom lines?

According to the Bloomberg editorial, it would pretty much erase the annual profits for most of them, save one.

Is that fair to the rest of American businesses, many of whom have to live in a real free market? And what, if anything, should be done about it?

Brent Burkey covers retail, tourism, and Lebanon and York counties. Have a tip or question for him? Email him at You can also follow him on Twitter, @brentburkey.

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