On Thursday, the WSJ Pro published an article titled “Biggest Banks Get Annual $62 Billion Taxpayer Benefit, IMF Research Shows.” The title of the article is incorrect. The IMF paper did not, in fact, “show” anything — It assumed banks are still “too-big-to-fail” (TBTF), and then calculated the size of the TBTF benefit under that assumption. The paper in no way tested whether large banks actually are still TBTF.
We are not making a controversial point. The 2014 GAO report on too big to fail included a review of the economic literature as part of its assessment of whether large banks still receive a funding benefit. The GAO excluded option-pricing based assessments (such as the IMF working paper) because “…this methodology assumes a too-big-to-fail funding cost advantage exists and only estimates its magnitude.” (See p. 42 of the GAO report.)
By mischaracterizing the IMF working paper, the WSJ Pro leaves readers with the impression that the extensive and successful (according the GAO) efforts by banks, regulators, and Congress to end TBTF aren’t working. We encourage the WSJ to retract and correct the article.
Disclaimer: The views expressed in this post are those of the author(s) and do not necessarily reflect the position of The Clearing House or its membership.
