Oversight

GAO: Government assistance provided largest banks with borrowing advantages

foil.seal.gaoA recent GAO report found that while government assistance helped limit the impact of the financial crisis, it also provided America’s largest banks with advantages, including the ability to borrow at lower rates and longer maturities.

The GAO found that at the end of 2008, program use—the percentage of total assets supported by the government-funded programs—was higher on average for bank holding firms with $50 billion or more in assets than for smaller institutions.

In addition to being able to borrower at lower rates and longer maturities, the Federal Reserve issued a number of exemptions to allow banks to provide liquidity support for nonbank affiliates.

The GAO also found that while the Fed is required to establish rules implementing changes to its emergency authority powers and ability to assist financial firms, the central bank has not yet done so.

“Setting time frames could help ensure more timely completion of these procedures,” the GAO said in the report. “GAO recommends that the Federal Reserve Board establish timeframes for completing its process for drafting procedures related to its emergency lending authority to ensure timely compliance with Dodd-Frank Act requirements.”

The GAO was asked to review the benefits, both actual and implied, provided to large bank holding companies during the financial crisis.

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