Government Support for Bank Holding Companies:
Statutory Changes to Limit Future Support Are Not Yet Fully Implemented
GAO-14-174T: Published: Jan 8, 2014. Publicly Released: Jan 8, 2014.
What GAO Found
GAO found that from 2007 through 2009, the federal government's actions to stabilize the financial system provided significant funding support and other benefits to bank holding companies and their subsidiaries. The Board of Governors of the Federal Reserve System (Federal Reserve Board), the Department of the Treasury (Treasury), and FDIC 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 Treasury's capital investment programs, the Federal Reserve System's lending programs, and FDIC's guarantee programs. Some large institutions benefited from special assistance specific to their institution.
GAO also found that programs generally were made available to institutions of various sizes, and differences in the use of programs by institutions of various sizes were driven in part by differences in how institutions funded themselves. For example, compared to smaller bank holding companies, larger bank holding companies relied less on deposits as a source of funding and more on short-term credit markets and participated more in programs created to stabilize these markets. In addition, large bank holding companies were significant users of Federal Reserve System programs targeting repurchase agreement markets. 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 over $50 billion in total assets than for smaller firms. For example, total loans outstanding from selected Federal Reserve System programs combined were at least 2 percent of assets on average for banking organizations with $50 billion or more in assets and less than 1 percent of assets on average for smaller organizations. The six largest bank holding companies were significant participants in several emergency programs but exited most of the programs by the end of 2009. Differences in program use across banking organizations of various sizes diminished as institutions exited the programs.
Why GAO Did This Study
This testimony discusses issues related to government support for large bank holding companies. The federal government maintains programs--frequently referred to as safety nets--to reduce the vulnerability of depository institutions to runs that could threaten the health of the banking system and the broader economy. Two programs are generally considered to form the core of these safety nets: the Federal Reserve System's discount window and Federal Deposit Insurance Corporation (FDIC) deposit insurance.
Based on GAO's November 2013 report, entitled Government Support for Bank Holding Companies: Statutory Changes to Limit Future Support Are Not Yet Fully Implemented (GAO-14-18). This report was the first of two reports GAO will issue on the economic benefits that the largest bank holding companies have received as a result of actual or perceived government support.
GAO's November 2013 report examined (1) actual government support for banks and bank holding companies during the financial crisis, and (2) recent statutory and regulatory changes related to government support for banks and bank holding companies. Specifically, in a second report to be issued in 2014, GAO will examine any funding or other advantages the largest bank holding companies have received as a result of implied government support.
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