America's TBTF Bank Subsidy From Taxpayers: $83 Billion Per Year

Tyler Durden's picture

Day after day, whenever anyone challenges the TBTF banks' scale, they are slammed down with a mutually assured destruction message that limitations would impair profitability and weaken the country's position in global finance. So what if you were to discover, based on Bloomberg's calculations, that the largest banks aren't really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers? The stunning truth is that the top-five banks account for $64 billion of an implicit subsidy based on the ludicrous (but entirely real) logic that: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail. Perhaps this realization will increase shareholder demands - or even political furore? The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger.


Via Bloomberg,

... the biggest U.S. banks ... make the case that size is a competitive advantage. It helps them lower costs and vie for customers on an international scale. Limiting it, they warn, would impair profitability and weaken the country’s position in global finance.




What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers?




Let’s start with a bit of background. Banks have a powerful incentive to get big and unwieldy. The larger they are, the more disastrous their failure would be and the more certain they can be of a government bailout in an emergency. The result is an implicit subsidy: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail.


Lately, economists have tried to pin down 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., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. - - account for $64 billion of the total subsidy, an amount roughly equal to their typical annual 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 large part, the profits they report are essentially transfers from taxpayers to their shareholders.


Neither bank executives nor shareholders have much incentive to change the situation. On the contrary, the financial industry spends hundreds of millions of dollars every election cycle on campaign donations and lobbying, much of which is aimed at maintaining the subsidy. The result is a bloated financial sector and recurring credit gluts. Left unchecked, the superbanks could ultimately require bailouts that exceed the government’s resources. Picture a meltdown in which the Treasury is helpless to step in as it did in 2008 and 2009.


Regulators can change the game by paring down the subsidy. 




Once shareholders fully recognized how poorly the biggest banks perform without government support, they would be motivated to demand better. This could entail anything from cutting pay packages to breaking down financial juggernauts into more manageable units. The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger. 

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fonzannoon's picture

this time around it's going to be an insurance company. they are scrambling to buy pensions and other assets to get as big as possible so when the time comes they can hold the gun to their heads and scream that they will blow their head off and take everyone with them.

Dr Benway's picture

The Blazing Saddles gambit, eh?

GetZeeGold's picture



The sheriff is what?


No way in hell I'm going to believe that dark complected guy is a marxist.

Squid-puppets a-go-go's picture

what makes their performance so laughable is that this is the mob who borrow from the Fed at 0.5%, lend it back to the US as bonds earning 2,3,4% - and EVEN THEN THEY CANT MAKE A PROFIT without other govt subsidies.

Epic fiscal failures

greyghost's picture

now what the hell was i saying earlier.....oh yea....something about bankers taking the butter fat, cream and now the 2% milk. and to think i just got hammered with the down arrow votes. a few post later and the zero hedge boys step with the answer. for those fucktards too ignorant or stupid to see or listen i will is not the person who lives next is not your is not even your grandparents fault. is a banking system stealing not only this country blind, but europe also. these people know no bounds, have no compassion for anyone and remorse is not in their dick/tionary. and why is it on the red and blue map that the poorest states are "red"...hmmm

yea squid so money and they still aren't even trying to straighten themselves out. i figure they are just sucking the whole system dry for their own personal hell with everyone else.

fourchan's picture

we pay them to enslave us, the feds "system" is working perfectly.

DaveyJones's picture

psychology really - fat and lazy, all incentive destroyed by corruption

what's that? when do the prosecutions start? 

wait, another building's gone down

gwar5's picture

...and they'll be bailed ou t with a priva te pension grab, ala Argenzuela. Because even the Latin crazies know there is no such thing as a trillion dollar banana. 

max2205's picture

That's the money they dont have to pay savers. Crime


Ben watch out for grey haired people when the time comes

IridiumRebel's picture

That's it? Fuck. Bernanke shoots monetary jizz of 85 Bil per month.....That ain't shit. wake me at a trillion.....






...probably by May.....

DoChenRollingBearing's picture

This is very O/T, but I suspect the Tylers won't mind as we just bought something from one of their advertisers...  A couple of weeks (or so) ago, I say an ad by, a maker of promotional (give-away) flash drives.  We ordered 100 of them to give to our customers in Peru.

Well, they came out beautifully!  And there is NO WAY that all 100 are going to make it to Peru!

I did not order directly through the ad, so I do not know if ZH got any revenue (although I clicked the ad to start).  Take a look at the drives with our logo, etc. on them as well as how much it costs us, and so on:

DoChenRollingBearing's picture

<--- Upon re-visiting, there they are!!  Amazing!

Cognitive Dissonance's picture

'Regulators can change the game by paring down the subsidy.'

Who are these "regulators" Bloomberg speaks of and what is their function? 

<I wish these damn news repeaters would speak the King's English. You know....Fedspeak.>

hidingfromhelis's picture

Their function is to generate page hits for the porn industry.  Mission accomplished!

The whole idea that, "Regulators can change the game by paring down the subsidy." is absurd.  Would those be the regulators that are selected by the legislators who are selected by the TBTF banks?  None of them have ever met a conflist of interest they wouldn't go down on.

DaveyJones's picture

a lot like the FDA regulating Monsanto

We are ALL fed poisonous, deadly bullshit

tickhound's picture

As if the us consumer gives a shit about this.  They don't even understand it.  They can't even scale it to anything.


"Neither bank executives nor shareholders have much incentive to change the situation"

Nothing else matters until they don't matter.


LetThemEatRand's picture

The problem is teacher and firefighter salaries/pensions.   And too many regulations on banks.   Nothing to see here.  Move along.

fonzannoon's picture

the problem is the lack of beheadings of bankers and union heads.

SuccorMoney's picture

I didn't realize banks were unionized.

TheFourthStooge-ing's picture


I didn't realize banks were unionized.

It's actually more of a crime guild.

DaveyJones's picture

What's that old Gilda SNL routine? "It's not a gang, it's a club!" 

Sweet Gilda

another line that always pops in my head on this site:

"those fish are all swimming around in their own toilet!"

rehypothecator's picture

If Buckaroo Banzai has anything to do with it, they'll all be ionized soon.  (But then they won't be fine.)  

otto skorzeny's picture

LTERand-more of your usual socialist garbage? and yes-the asshole union techers and asshole union firefighters and the TBTF banks are all part of the same corrupt system-the only innocents are the children. as J. Morrison said -"No one here gets out alive"

waterhorse's picture

lol - straight out of the "Americans for Prosperity" playbook.

tony bonn's picture

this insight shows 2 thing - 1. there is a point beyond which economies of scale become negative 2. these meatball managers are not too bright...which  is why they resort to criminal and bullying methods to survive....this america's best and brightest b-school crop - smells like wilting green shoots with a large serving of goat shit...

gwar5's picture

ZH recent ar ticle on  the banks propping up CA housing made me reallize it is also propping up CA.


House prices stay higher and so do property taxes for those who still pay, while the non-paying underwater squatters get to spend their paychecks racking up sales taxes and pay their income taxes unbuffered without any mortgage interest deduction. Gov Moonbeam Like!

venturen's picture

But Oh the Bonuses. These banks aren't run for shareholders. They are run for the executives and those who can pile on the most risk and earn 7 digits while having ZERO risk for themselves. All those that ran Lehman and Bear into the ground and now just working somewhere else...attempting to perform the same feat. And this time they will know to pull all their money out. These are subsidized cartels! 

Carbon Penguin's picture

All power to the credit unions!

venturen's picture

Name an powerful Washington player that hasn't take money from the TBTF cartel. Every democrat now passes through these money machines....Corzine, Lew, Ortzag....etc

davidsmith's picture

"The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger."


Poor ZH, when the going gets tough, they retreat to that fantasy called "the market."  What's next, invoking the tooth fairy?  Sad.

fuu's picture

Actually Bloomberg said it, ZH just bolded the font.

SuccorMoney's picture

If TBTF banks pay lower rates because of the assumption that they're backed by the Full Faith and Credit of the US Government, may as well nationalize them, make it explicit, and save money in the process.

climber's picture

what the fucking fuck

hidingfromhelis's picture

Reminds me of Tim Minchin's lovely little tune about someone else quite deserving of that sentiment.

Atomizer's picture



Good evening gang. Just went to No Best Buy’s to purchase a new test laptop utilizing Windoz 8. This software reminds me of the ME & Vista abortion.  The user interface is controlled by the software, not the user. After contributing to setting up a mandatory MS email account, stripping down all the bullshit APPS. The computer OS was no easier than trying to herd Central Planners/ Special Interests groups into a large gated animal pin.


I will keep this computer and use my Windows 7 seats to downgrade the clusterfuck tampon rag they call an operating system. During the setup, I was required to create an msn email, if you ever need to reach me..


/Rant off


Someone must of subsidized this vomit invoked, road rage induced software. Bet the slaves fronted the monies..

Meatballs's picture

XP works just fine. All MS keeps doing is dumbing it down to keep up with the general population.

seek's picture

And linux isn't half bad these days either. And if you don't mind sharing your work with NSA/CIA/FBI, ChromeOS as well.

CaptainSpaulding's picture

Try windows 7 pro full version and do a clean install. No issues here. It purrs like a kitten.

DoChenRollingBearing's picture

@ Atomizer

YES, that really sucks.  About all that any of us really wants is just a computer to work right, run the programs we need and want and not harass us re mandatory this, updates that.

Oh, but I hate Apple machines too.  And am not very good at computers, so LINUX, etc. is out.

Yeesh.  But, I like yr meail address!  Fighting the system!

Haager's picture

"Oh, but I hate Apple machines too. And am not very good at computers, so LINUX, etc. is out."

Ever tried Linux-Mint? It's usually more easy to setup than Windows7 clean install. Just try it, and hug me later on.

Bob Sacamano's picture

Not a big fan of the banks, but while I can buy the 80bps of savings on the liabilities, I do not believe the same is true for deposits.  And the IMF does not seem to be the go to organization for financial wisdom.

Best solution is a meaningful increase (double?) in equity capital requirements for all banks if they want government guarantee on deposits. 

Clowns on Acid's picture

The BBG article completely understates the subsidy to the banks.
One must also include the $85B per month that the Fed has spent (taxpayer $) buying @ mark to model prices, securitized crap, effectively taking in some cases worthless paper off of the banks balance sheets.
Not to worry the pay packages at the major banks for the traders of MBS and securitized crap is still in the 1MM to $10MM range depending on their senoriage.
No claw backs from the ex Lehman or ex Bear traders thriving in the slop.

Atomizer's picture

Banks are funding NASAQ mooncrickets, by blowing winds in an empty parachute jumper to create new bubbles.

MoneyThangs's picture

Someone please make this selling stop? This is 2008 all over again, hopefully we have bottomed out today