During a Senate Banking committee hearing on Tuesday, Sen. Elizabeth Warren (D-MA) grilled Federal Reserve Chairman Ben Bernanke on whether Wall Street banks should have to pay back U.S. taxpayers for the implicit funding advantage those banks receive by virtue of being viewed as “too big to fail.” According to a Bloomberg News study, big banks are essentially subsidized by about $83 billion per year because investors anticipate that those banks will be saved by the government if they get in trouble.
“These big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year simply because people believe the government would step up and bail them out. If they are getting it, why shouldn’t they pay for it?” asked Warren:
WARREN: So I understand that we’re all trying to get to the end of “too big to fail.” But my question, Mr. chairman, is until we do, should those biggest financial institutions be repaying the American taxpayer that $83 billion subsidy that they are getting?…It is working like an insurance policy. Ordinary folks pay for homeowners insurance. Ordinary folks pay for car insurance. And these big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year simply because people believe that the government would step in and bail them out. And I’m just saying, if they are getting it, why shouldn’t they pay for it?
BERNANKE: I think we should get rid of it.
As Bloomberg found, the biggest banks wouldn’t even be profitable without the expectation that they would be rescued by the government. “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 large part, the profits they report are essentially transfers from taxpayers to their shareholders,” Bloomberg noted.