The Downside of Cheap Money
From 2007 to today, the assets of major central banks nearly doubled from $10.4 trillion to $20.5 trillion, reports the Bank for International Settlements (BIS) in its just-released annual report.
— Robert Samuelson, “The Downside of Cheap Money,” RealClearPolitics.com, June 24. 2013, http://www.realclearpolitics.com/articles/2013/06/24/the_downside_of_cheap_money_118925.html
Why Should Taxpayers Give Banks $83 Billion a Year
The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as to big to fail.
Lately economists have tried to pin exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers – Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz – put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.
Big Difference
Small as it might sound, 0.8 percentage point makes a big difference. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.
The top five banks – JPMorgan, Bank of America Corp., Citigoup Inc., Wells Fargo & Co. and Goldman Sachs Group In. – account for $64 billion of the total subsidy, an amount roughly equal to their typical profits (see tables for data on individual banks). In other words, the banks occupying the commanding heights of the U.S. financial industry – with almost $9 trillion in assets, more than half the size of the U.S. economy – would just about break even in the absence of corporate welfare. In a large part, the profits they report are essentially transfers from taxpayers to their shareholders.
— By the Editors, “Why Should Taxpayers Give Banks $83 Billion a Year,” Bloomberg, Feb 20, 2013 5:30 PM CT, http://www.bloomberg.com/news/2013-02-20/why-should-taxpayers-give-big-banks-83-billion-a-year-.html