| WASHINGTON, July 24
WASHINGTON, July 24 A U.S. Senate panel will
meet next Thursday to discuss results of a much anticipated
government study that looked at whether the biggest banks can
borrow at lower interest rates because investors think they
would be bailed out in a crisis.
Senator Sherrod Brown of Ohio, a Democrat, and Senator David
Vitter of Louisiana, a Republican, who serve on the Senate
Banking Committee, asked the Government Accountability Office
more than a year ago to determine whether banks that are deemed
"too big to fail" are able to borrow more cheaply than smaller
banks can. Bank critics say that cheaper borrowing represents a
market subsidy for the biggest institutions.
Brown leads the Subcommittee on Financial Institutions and
Consumer Protection, which will take up the GAO report in a
hearing on July 31. The report has not been made public yet.
U.S. Treasury Secretary Jack Lew and other officials have
said publicly that any benefit for big banks such as JPMorgan
Chase & Co and Citigroup Inc has shrunk since the
2007-2009 financial crisis. During the crisis, many financial
services companies, including insurer American International
Group Inc., were bailed out.
Regulators have worked to implement the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010, which sought
to end bailouts by limiting banks' reliance on debt and forcing
banks to plan for future crises.
The GAO report is expected to find a reduced subsidy for
size. However, people familiar with the report said it would
show that investors would feel safer with the biggest banks in a
future economic meltdown because they still see a federal
government bailout as possible. That could be part of why some
borrowing subsidy persists.
In March, the International Monetary Fund said subsidies for
U.S. banks' borrowing had fallen as of 2013 but that they might
never disappear completely. On average, banks deemed
systemically important still enjoy implicit subsidies of around
60 basis points compared with their less weighty peers, the IMF
Big banks and their lobbyists, on the other hand, say that
U.S. lawmakers are not eager to bail out financial institutions.
The lobbyists and their banking clients also point out that the
large players in other industries can borrow more cheaply than
their smaller competitors, even though those big companies do
not expect to be bailed out in a crisis.
(Reporting by Emily Stephenson; Editing by Jan Paschal)