Global Finance: IMF: Size Gives Large Banks Big Funding Edge
The International Monetary Fund is the latest organization to weigh in on what many lawmakers have been saying since the financial crisis: Size does matter when it comes to being a bank.</br></br>Large U.S. banks received a funding advantage of as much as $70 billion between 2011 and 2012, as investors demanded lower interest rates because of a perception that the government wouldn't let such firms fail during turbulent times, an IMF study found.</br></br>The benefit is global: Big banks in the euro area received as much as $300 billion in funding-cost advantages during that period, varying from $25 billion to $110 billion in Japan and $20 billion to $110 billion in the U.K., based on the analysis by the international organization based in Washington.</br></br>The study suggests regulators have work to do to curb the perception that banks are "too big to fail." The IMF found the expected value of government guarantees for a distressed bank is roughly comparable to what they enjoyed before the 2008 financial crisis.</br></br>"The high degree of concentration carries with it a high degree of potential systemic risk," according to the study. "The distress or failure of one of the top three banks in a country, for example, could destabilize the country's entire financial system, in part because its activities may not easily be replaced by other institutions."