Senators Warn GAO Not to Break the Banks

From The Fiscal Times
By Rob Garver
April 21, 2014


Big banks don’t have a lot of friends these days, but in a letter to the Government Accountability Office last week, Sens. Tom Carper (D-DE) and Mark Kirk (R-IL) showed that there are at least some people on Capitol Hill willing to stand up and make sure giant financial firms get a fair shake from the government.

The GAO is currently writing the second half of a two-part study analyzing the funding advantage that large banks have over smaller institutions. The “funding advantage” refers to the ability of large institutions to borrow at lower rates than their smaller competitors, which in turn allows them to lend at lower rates while retaining the same profit margin.

The first of the two studies, released last year, confirmed that during the financial crisis from 2007 to 2009, large banks benefited disproportionately from the federal bailout, and were able to borrow at rates considerably lower than those offered to smaller competitors. The second report, expected later this year, will try to assess just how much of an ongoing funding advantage big banks enjoy, and how much of it is due to the public’s impression that the government won’t let them fail. Both reports were mandated by the Dodd-Frank financial services reform bill.

In their letter, Sens. Carper and Kirk expressed concern that GAO might not be using an “apples to apples” comparison when it assesses banks with assets over $500 billion, and laid out a sizeable list of factors that they want the GAO to begin to consider in the report, which investigators have already spent many months on.

Professor Cornelius K. Hurley, director of the Boston University Center for Finance, Law & Policy, said the letter seemed to him to be written in order to “throw sand in the gears” of the study process. “The letter seeks to divert the GAO from its assigned specific task of measuring the benefit from being TBTF [too big to fail] into a much broader assessment of the efficacy of Dodd-Frank,” he said…


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