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Too-Big-to-Fail Study to Show Bank Subsidy, Brown Says

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July 25 (Bloomberg) -- The biggest U.S. banks enjoy economic advantages because markets believe the government won’t allow them to fail, a report for the Senate will conclude, according to a lawmaker who requested the inquiry.

Senator Sherrod Brown, a Democrat from Ohio, said in an interview yesterday that he believes the Government Accountability Office report is “going to say there’s clearly a subsidy.” He said he expected the report to be released by the “end of next week.”

Brown and Senator David Vitter, a Louisiana Republican, asked the GAO investigate whether there are economic benefits, including lower interest rates, for banks considered to be too big for the government to allow them to fail. Such banks generally have at least $500 billion in assets.

The report could help build support for legislation proposed by Brown and Vitter that would impose a 15 percent capital requirement on the largest banks.

Brown, chairman of the Financial Institutions and Consumer Protection subcommittee of the Senate Banking Committee, also said he will hold a hearing on the topic next week.

“It matters what the markets think and the markets are giving them advantages and we expect the GAO report to say that,” Brown said.

To contact the reporter on this story: Cheyenne Hopkins in Washington at chopkins19@bloomberg.net

To contact the editors responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net Anthony Gnoffo, Gregory Mott