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Government to study big banks

By David McMillin · Bankrate.com
Tuesday, January 22, 2013
Posted: 5 pm ET

Are big banks still protected from the possibility of failure?

That's the question Sen. Sherrod Brown, D-Ohio, and Sen. David Vitter, R-La., are asking the Government Accountability Office to answer with new research into whether institutions with more than $500 billion in assets are enjoying perks such as lower borrowing rates and inflated credit ratings.

While there are plenty of headlines that highlight an inability of Democrats and Republicans to work together in Washington, it looks like the two sides can agree on the need to look into the biggest members of the banking industry.

"There is broad bipartisan support for the position that we must end "too-big-to-fail" government policies, whereby the U.S. government provides financial support to large financial institutions to protect them from failures of their own making," Brown and Vitter wrote in a joint letter to Gene Dodaro, the U.S. comptroller general and head of the Government Accountability Office.

Lawmakers aren't the only ones who believe that big banks enjoy big benefits.

"Gaining much-needed information on the probable market distortion and risks that the largest megafinancial institutions pose by benefiting from government intervention will help taxpayers better understand how these institutions affect our financial system and economy," Cam Fine, ICBA president and CEO, said in a statement.

It's no secret the government propped up the banking industry during the financial crisis. In the joint letter from Brown and Vitter, the two cite a revealing figure from the Congressional Oversight Panel for TARP: The six largest banks received $1.27 trillion in government support. Yes, that is trillion with a "t."

Now, the GAO study will look into whether that support has continued to give big banks an unfair competitive advantage that may have a negative impact on the market as a whole. Chuck Young, a spokesman for the Government Accountability Office, says that the GAO is currently putting a team together for the research. He expects the study will begin within the next few weeks.

What do you think researchers will find? Do you think that the biggest banking institutions are getting an unfair advantage?

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4 Comments
Curtiss Sanders
January 23, 2013 at 4:15 pm

After my son had some problem with a mortgage at BOA and was in the process os foreclosure. We tried to find out from BOA what the loan balance was and what it would take to pay it off. After a week or more the BOA could not or would not tell us what the pay off was on the loan. I went to the Court House with a letter from my bank with a letter to accept a check for $175.000 and was told by the BOA Attorney that she did not know what the balance was and that she could not comment on that. The bank manager in Atlanta told my son that they probally could not let him pay the loan off.

Gary Wollman
January 23, 2013 at 3:59 pm

I think that any business that is too big to fail should be broken up by the antitrust division of the department of justice. I would put banks, brokerages, insurance companies and Microsoft on a list to investigate for antitrust disolution. Microsoft aside, We did not have the too big to fail problem when we only had regional banking.