While the big banks tout “bigger is better” when it comes to their industry, there seems to be strong evidence to the contrary. According to this article in Bloomberg, the top 10 largest banks really aren’t profitable and are essentially being supported by U.S. Taxpayers. To be exact, tax-payers are shelling out $83 billion a year to support banks while their real profit margins typically equal the subsidy. In some cases, the big banks are reporting profits which they would not have were it not for the tax payer subsidy. What does this mean for Americans? This could potentially lead to a second massive failure that the U.S. Treasury could not afford to bail out.
Many of you may question why this is occurring…… well, the larger the banks become, the lower the rate at which they can borrow. This is perceived by many as a benefit and gives the appearance that these banks are too large to fail. How can we solve this problem? The regulators must change the rate at which they are doling out the subsidy or make the creditors take a loss when a bank fails. If Americans took in the full picture, perhaps the banks would be forced to change.