Tuesday, January 19, 2010

Bank Too Big To Fail Subsidy Less Than Reports

...more conservative estimate of the TBTF [too big to fail] subsidy...come up with a dollar value of $6.3 billion. This estimate is ignored by most commenters, who tend instead to focus on the more shocking $34.1 billion estimate.
...the spread between large bank and small bank borrowing costs was actually higher during the fourth quarter of 2001 than it ever reached during the current financial crisis. Is it reasonable to assume that the gap in 2001 was attributable to large banks being too big to fail? I don’t think so, and I doubt if anyone can point to serious speculation that any of the countries largest banks might fail and that they would bailed out by the government during the fourth quarter of 2001. This suggests that a rate spread resulting from people flocking to larger banks during times of economic uncertainty, like the period immediately preceding 9/11, can be as big as or bigger than the rate spread we are currently observing.
From "Debunking The $34.1 Billion Too Big To Fail Subsidy" by Adam Ozimek.

See my previous post on Adam's analysis of TBTF, "Too Big Too Fail Does Not Exist And Is Just Rhetoric" and read Adam's comment to that post.

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