Are we giving “too big to fail” banks $83 billion a year?

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Policy Interns

The short answer is: maybe.

On Wednesday, during the Senate Banking Committee hearing, Senator Elizabeth Warren grilled Federal Reserve Chairman Ben Bernanke on the $83 billion implicit subsidy that big banks receive from low interest rates. That night, Fox Business News’ Gerri Wilson misquoted the figure, expressing outrage over the “$83 trillion dollars, you know, I can’t get over that number.”

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Both women were alluding to the $83 billion figure calculated by the Bloomberg View’s editorial team last week. This “too big to fail” (TBTF) subsidy refers to the advantage that big banks receive in borrowing because creditors assume the government will bail them out should they fail.

As the debate over how to address risk in the financial system continues, the question over the existence and the size of this subsidy will doubtlessly be revisited time and time again. Understanding the rationale behind these figures is important for informing…

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