GAO Report – Government Support for Bank Holding Companies

by Sabrina I. Pacifici on November 14, 2013

Statutory Changes to Limit Future Support Are Not Yet Fully Implemented, GAO-14-18, Nov 14, 2013

“During the 2007-09 financial crisis, the federal government’s actions to stabilize the financial system provided funding support and other benefits to bank holding companies and their subsidiaries. Agencies introduced new programs with broad-based eligibility that provided funding support to eligible institutions, which included entities that were part of a bank holding company and others. Programs that provided the most significant support directly to bank holding companies or their subsidiaries included Department of the Treasury capital investment programs, Federal Reserve System lending programs, and Federal Deposit Insurance Corporation (FDIC) guarantee programs. Together these actions helped to stabilize financial conditions, while participating firms also accrued benefits specific to their own institutions, such as liquidity benefits from programs that allowed them to borrow at longer maturities and at interest rates that were below possible market alternatives. At the end of 2008, program use–measured for each institution as the percentage of total assets supported by the programs–was higher on average for banks and bank holding companies with $50 billion or more in total assets than for smaller firms. The six largest bank holding companies were significant participants in several emergency programs but exited most by the end of 2009. Differences in program use were driven in part by how institutions funded themselves. For example, while smaller banks relied more on deposit funding, larger bank holding companies relied more on short-term funding markets and participated more in programs that assisted these markets. In addition to these programs, the Board of Governors of the Federal Reserve System (Federal Reserve Board) granted several regulatory exemptions to allow banks to provide liquidity support to their nonbank affiliates and for other purposes. Finally, government assistance to individual troubled firms benefited these firms, their counterparties, and the financial system.”

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