by Olivia LaVecchia
When the country’s giant banks were teetering on the verge of collapse during 2008’s financial crisis, the U.S. government stepped in to bail them out. The banks were, in a phrase that has since become infamous, “Too Big To Fail.”
Would the government do it again? And does the expectation that it would step in give megabanks an unfair competitive advantage over local community banks?
Those are the questions at the heart of an eagerly awaited report released at the end of July by the Government Accountability Office, a nonpartisan federal department. In a conclusion that highlights the need for more regulatory action to reduce concentration in the banking system, the G.A.O. found that the answers to both questions are “yes.”
Six years after the bailout, the country’s biggest banks have only grown bigger. Just four megabanks, each with more than $1.5 trillion in assets, control 45 percent of the country’s banking industry, up from 37 percent in 2007, according to FDIC data. The consequences for the economy — higher consumer fees, fewer small business loans, and more risky speculative trading — are substantial.
To Senators David Vitter, a Republican from Louisiana, and Sherrod Brown, a Democrat from Ohio, these are among the signs that “Too Big To Fail” works as a kind of implicit insurance — and as such, a subsidy — for the megabanks. Because creditors and investors believe taxpayers will rescue the banks if anything goes awry, they are willing to finance big banks at much lower interest rates than they offer smaller institutions.
The Senators have introduced a bill, the “Terminating Bailouts for Taxpayer Fairness Act,” that aims to end this implicit government subsidy, and create a fairer playing field for community banks.
The Senators are also the ones who called for the G.A.O. report, in order to get a better sense of just how big the megabanks’ advantage is.
In the report, the G.A.O. looked at one particular benefit that the taxpayers’ guarantee nets the megabanks: whether they’re able to borrow money – issue debt – more cheaply than smaller financial institutions. Using 42 models, the G.A.O. found that though the benefit has tapered off in recent years, during the heart of the financial crisis, in 2008 and 2009, megabanks were able to borrow at significantly lower rates. Continue reading
The FCC has made a $100 million fund available to organizations seeking to bring advanced telecommunications to rural America. The National Rural Assembly is hosting a national webinar to explain the criteria and application process. If you or your organization have a stake in expanding broadband in rural areas, you may want to consider this… Continue reading
When it comes to ownership, there are few better structures for keeping a community’s wealth local than a cooperative. So why is it that America’s rural electric cooperatives are tethered to dirty, old coal-fired power plants instead of local-wealth generating renewable power? There are a lot of answers to this question, but it might start… Continue reading
The Regional Solid Waste Management Board that oversees the County and City of Fredericksburg landfill will not pursue a garbage and industrial waste incineration-gasification facility. The County received no bid that it considered financially beneficial to the County and City and dropped the project. StopTheStaffordIncinerator.com has submitted an FOI Request to obtain copies of the… Continue reading
ILSR is excited to announce a new short video examining an impressive municipal broadband network, Glasgow Kentucky. Glasgow was the first municipal broadband network and indeed, seems to have been the first citywide broadband system in the United States. We partnered with the Media Working Group to produce this short documentary and we have the… Continue reading