* Euro zone banks have implicit subsidy of up to $300
* Rules after financial crisis meant to reduce issue of 'too
big to fail'
* IMF says funding advantage of top U.S. banks declined
(Recasts top, adds background and quote from IMF)
By Anna Yukhananov
WASHINGTON, March 31 Top banks around the world
benefit from an assumption that governments will rescue them
during a panic, despite regulations meant to reduce the need for
future bailouts, the International Monetary Fund said in a
report on Monday.
In one of the first studies to compare funding advantages
internationally, the IMF found that the euro zone's biggest
banks benefited from an implicit taxpayer subsidy of $90 billion
to $300 billion in 2011-2012.
Subsidies in the United Kingdom and Japan may have been as
high as $110 billion at that time, while they ranged from $20
billion to $70 billion in the United States, the IMF said.
"One of the most troubling legacies of the global financial
crisis is the widely held notion that some banks are simply 'too
important to fail'," the IMF said in its twice-yearly Global
Financial Stability Report.
Banks' funding advantages have gone down somewhat since
2009, especially in the United States, due to tighter
regulations and effective supervision, the Fund said.
They remain higher in the euro zone due to the scale of
needed balance sheet repairs and differing responses from
On average, so-called systemically important banks still
enjoy implicit subsidies of around 60 basis points compared to
their less weighty peers, the IMF said.
The report from the Washington-based global lender could
influence the United States and Europe as they implement tough
new rules for the financial industry to minimize the likelihood
and cost of bailing out big banks.
Bank assets have grown dramatically in many countries since
2000, while the number of banks has fallen. In most countries,
the assets of the three largest banks make up at least 40
percent of total banking assets, while in Canada, France and
Spain that figure is at least 60 percent, the IMF said.
That means problems or failure in one top bank could throw a
nation's entire financial system into chaos.
This problem only got worse in the wake of the 2007-2009
global financial crisis, when many governments intervened in the
banking sector or encouraged mergers to prevent banks from
collapsing, according to the report.
"Countries emerged from the financial crisis with an even
bigger problem: many banks were even larger than before and so
were the implicit government guarantees," the IMF said.
In a separate study released last week, economists at the
Federal Reserve found a funding advantage of about 31 basis
points for the five largest banks in the United States.
The study, which used data through 2009, did not look at
whether the advantage persisted as regulators moved to implement
a 2010 law meant to reduce the need for future bailouts.
The IMF found that U.S. banks' subsidies had fallen to about
15 basis points in 2013.
The Fund used three methods for calculating the funding
advantage of top banks: comparing their bond yields to those of
other banks; analyzing how much banks have to pay to insure
against default; and using credit rating agencies' estimates of
While the three estimates diverged somewhat, they showed
that top banks benefited from a belief among investors that
governments would rescue them in a panic situation.
The IMF said it may not be possible to remove 'too important
to fail' subsidies completely because bailing out a bank may be
better at times for an economy than letting it collapse.
Shrinking banks or revamping their structure also may not be
a good solution because large banks may enjoy economies of scale
and scope that keep costs low for consumers and promote market
liquidity, it said.
Further, it said restrictions on bank practices could lead
to riskier activities migrating into less regulated parts of the
The IMF said regulators should instead focus on ensuring
banks are less likely to fail by taking steps such as boosting
the quality and size of capital buffers. It also recommended
having banks pay a levy based on the size of their liabilities
to compensate governments for their support.
"Given the difficulty of completely ruling out bailouts in
practice, some level of government protection, and thus some
positive subsidy, may be unavoidable," according to the report.
"Bank levies can allow governments to recoup part of it."
(Reporting by Anna Yukhananov; Editing by James Dalgleish)