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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Wed, 02/20/2013 - 22:54 | 3262047 fonzannoon
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.

Wed, 02/20/2013 - 22:56 | 3262050 Dr Benway
Dr Benway's picture

The Blazing Saddles gambit, eh?

Wed, 02/20/2013 - 23:02 | 3262066 DJ Happy Ending
DJ Happy Ending's picture

Yes, white women and all.

Thu, 02/21/2013 - 07:11 | 3262564 GetZeeGold
GetZeeGold's picture



The sheriff is what?


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

Wed, 02/20/2013 - 23:16 | 3262068 AlaricBalth
Thu, 02/21/2013 - 00:17 | 3262116 Squid-puppets a...
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

Thu, 02/21/2013 - 00:35 | 3262277 greyghost
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.

Thu, 02/21/2013 - 02:49 | 3262447 fourchan
fourchan's picture

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

Thu, 02/21/2013 - 11:50 | 3263385 DaveyJones
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

Wed, 02/20/2013 - 23:17 | 3262113 gwar5
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. 

Thu, 02/21/2013 - 09:03 | 3262694 max2205
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

Wed, 02/20/2013 - 22:56 | 3262049 IridiumRebel
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.....

Wed, 02/20/2013 - 23:07 | 3262057 DoChenRollingBearing
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:

Wed, 02/20/2013 - 23:08 | 3262081 DoChenRollingBearing
DoChenRollingBearing's picture

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

Wed, 02/20/2013 - 23:01 | 3262063 Cognitive Dissonance
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.>

Thu, 02/21/2013 - 02:45 | 3262442 hidingfromhelis
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.

Thu, 02/21/2013 - 11:54 | 3263424 DaveyJones
DaveyJones's picture

a lot like the FDA regulating Monsanto

We are ALL fed poisonous, deadly bullshit

Wed, 02/20/2013 - 23:05 | 3262071 tickhound
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.


Wed, 02/20/2013 - 23:08 | 3262078 LetThemEatRand
LetThemEatRand's picture

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

Wed, 02/20/2013 - 23:09 | 3262086 fonzannoon
fonzannoon's picture

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

Wed, 02/20/2013 - 23:16 | 3262110 SuccorMoney
SuccorMoney's picture

I didn't realize banks were unionized.

Thu, 02/21/2013 - 00:00 | 3262215 TheFourthStooge-ing
TheFourthStooge-ing's picture


I didn't realize banks were unionized.

It's actually more of a crime guild.

Thu, 02/21/2013 - 11:58 | 3263447 DaveyJones
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!"

Thu, 02/21/2013 - 00:57 | 3262311 rehypothecator
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.)  

Wed, 02/20/2013 - 23:38 | 3262164 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1 fonzanoon

Wed, 02/20/2013 - 23:25 | 3262130 otto skorzeny
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"

Thu, 02/21/2013 - 13:05 | 3263762 waterhorse
waterhorse's picture

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

Wed, 02/20/2013 - 23:09 | 3262083 tony bonn
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...

Wed, 02/20/2013 - 23:10 | 3262087 gwar5
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!

Wed, 02/20/2013 - 23:10 | 3262091 venturen
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! 

Wed, 02/20/2013 - 23:11 | 3262093 Carbon Penguin
Carbon Penguin's picture

All power to the credit unions!

Wed, 02/20/2013 - 23:12 | 3262096 venturen
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

Wed, 02/20/2013 - 23:14 | 3262103 davidsmith
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.

Thu, 02/21/2013 - 02:37 | 3262430 fuu
fuu's picture

Actually Bloomberg said it, ZH just bolded the font.

Wed, 02/20/2013 - 23:15 | 3262105 SuccorMoney
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.

Wed, 02/20/2013 - 23:28 | 3262142 climber
climber's picture

what the fucking fuck

Wed, 02/20/2013 - 23:39 | 3262168 Water Is Wet
Water Is Wet's picture


Thu, 02/21/2013 - 02:28 | 3262414 CaptainSpaulding
CaptainSpaulding's picture

Fuck the fucking fucker

-George Carlin

Thu, 02/21/2013 - 02:56 | 3262451 hidingfromhelis
hidingfromhelis's picture

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

Wed, 02/20/2013 - 23:42 | 3262171 Atomizer
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..

Wed, 02/20/2013 - 23:46 | 3262193 Meatballs
Meatballs's picture

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

Thu, 02/21/2013 - 00:22 | 3262258 miamizsun
miamizsun's picture

it's got electrolytes

Thu, 02/21/2013 - 01:27 | 3262355 seek
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.

Thu, 02/21/2013 - 02:21 | 3262415 CaptainSpaulding
CaptainSpaulding's picture

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

Thu, 02/21/2013 - 00:27 | 3262272 DoChenRollingBearing
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!

Thu, 02/21/2013 - 03:46 | 3262481 Haager
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.

Wed, 02/20/2013 - 23:49 | 3262198 Bob Sacamano
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. 

Thu, 02/21/2013 - 00:06 | 3262226 Clowns on Acid
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.

Thu, 02/21/2013 - 00:22 | 3262257 Atomizer
Atomizer's picture

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

Thu, 02/21/2013 - 00:23 | 3262259 MoneyThangs
MoneyThangs's picture

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

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