WASHINGTON (3/27/14)--A series of papers by Federal Reserve economists has found the largest U.S. banks enjoy a boost--what
labeled a "too-big-to-fail" advantage in financial markets--which brings lower funding and reduced operating costs.
Reuters went on to say that while the study did not pinpoint the reason big banks can borrow more cheaply, "Wall Street critics say it is because investors believe the U.S. government would again rescue them in a panic" (March 26).
The New York Fed research papers, released Tuesday in a special edition of that body's
Economic Policy Review
, address bank size, complexity and resolution issues.
According to the Fed papers, bank size has both benefits and costs: "The upside is the potential for economies of scale and lower operating costs; the downside is the 'too-big-to-fail' problem and associated funding advantages and moral hazard."
The papers also state that banks have become less bank-centric and more organizationally complex.
The 11 papers are titled:
- Do Big Banks Have Lower Operating Costs?;
- Evidence from the Bond Market on Banks' "Too-Big-to-Fail" Subsidy;
- Do "Too-Big-to-Fail" Banks Take On More Risk?;
- Components of U.S. Financial Sector Growth, 1950-2013;
- The Evolution of Bank Complexity;
- Measures of Complexity of Global Banks;
- Matching Collateral Supply and Financing Demands in Dealer Banks;
- Bank Resolution Concepts, Trade-Offs, and Changes in Practices;
- The Failure Resolution of Lehman Brothers;
- Why Bail-in? And How!; and
- Why Are Large Bank Failures So Messy and What to Do about It?
For more on the Fed papers, use the resource link.