Warren Criticizes U.S. Treasury Over Too-Big-to-Fail Research

U.S. Senator Elizabeth Warren criticized the Treasury Department for not conducting a formal study to determine if some banks receive a funding subsidy for being perceived to be too big to fail.

“The best way to make an objective determination of whether too-big-to-fail continues to exist over time is by measuring the subsidy, and Treasury should develop its own metrics for doing so through the Office of Financial Research,” Warren, a Massachusetts Democrat, said today in an e-mailed statement.

Warren’s comments came in response to a letter by Mary Miller, Treasury’s undersecretary for domestic finance. In the Sept. 10 letter to Warren, which her office released today, Miller said Treasury staff and the panel of regulators on the Financial Stability Oversight Council are monitoring academic research on the largest banks’ funding costs rather than conducting their own research.

Whether the largest banks receive a market funding benefit because of their size and a perception that the government will not let them fail has been a source of debate among regulators and lawmakers. The Government Accountability Office is conducting a study on the issue in response to requests from senators.

Miller said in her letter to Warren that Treasury staff met in April with the GAO about its study. Treasury has not asked the Office of Financial Research to examine the issue, she wrote.

Monitoring ‘Indicators’

“Treasury will continue to monitor financial market indicators, such as bank borrowing costs, to understand the impacts of the rules implementing the Dodd-Frank Act, and to understand whether these reforms are effective in creating incentives for the largest, most complex firms to reduce their size and complexity,” Miller said in the letter to Warren.

Treasury Secretary Jacob J. Lew in July said that if too big to fail is not solved by the end of this year “we’re going to have to look at other options.” He didn’t elaborate on what alternatives President Barack Obama’s administration might consider.

Warren, with Senator John McCain, an Arizona Republican, and a bipartisan group of lawmakers have introduced a bill aimed at re-creating the Glass-Steagall Act, the Depression-era measure that separated commercial and investment banking.

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