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‘Too Big to Fail’ Benefits Face Congressional Watchdog Scrutiny

U.S. banks’ benefits from being “too big to fail” will be examined by congressional watchdogs in response to a bipartisan request from senators who say the government hasn’t done enough to prevent future bailouts.

The Government Accountability Office said today that it plans to study the “economic benefit” banks such as JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. in response to a request from Senators David Vitter, a Louisiana Republican, and Sherrod Brown, an Ohio Democrat.

Vitter and Brown made the request that the GAO look at bank holding companies with assets more than $500 billion after leaders in the Republican-controlled House refused to take up their Senate bill, which passed unanimously.

“Though Congress has enacted financial sector reforms that its supporters, both in Congress and the administration, intended to mitigate the TBTF problem, we are concerned that these measures may not be sufficient to eliminate government support,” Vitter and Brown wrote in their letter to the GAO.

Lawmakers and regulators have said that Dodd-Frank, the 2010 measure enacted in response to the worst financial crisis since the Great Depression, ended too-big-to-fail by creating ways to unwind complex banks without taxpayer assistance.

The study sought by Vitter and Brown would look at whether the pricing of the banks’ assets relative to their risk profile results in a perception that they would get bailouts if needed, whether they get favorable funding as a result of increased credit ratings based on the view that they are too big to fail and how they benefit from access to the Federal Reserve’s discount window.

Nine systemically important banks including JPMorgan, Citigroup and Bank of America got a total of $125 billion in taxpayer aid from the Troubled Asset Relief Program after a credit freeze following the September 2008 collapse of Lehman Brothers Holdings Inc. Bank of America and Citigroup received additional bailouts after the initial TARP funding.

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