Sunday, 28 September 2014

Anat Admati makes a good point on TBTF.

As she points out, to measure the size of the TBTF subsidy, it is necessary to look at more than the DIRECT TBTF subsidy enjoyed by large banks. As she puts it here (1):

"In this context, it is also important to appreciate the role played by  government guarantees for  counterparties of banking institutions. In a financial system with a complex network of inter- institution contracts, the individual institution  benefits not only from government guarantees  protecting its own creditors but also from government guarantees protecting the counterparties of those in which it invested. For example,  the AIG bailout benefited many  counterparties of AIG, not the  least of these being the many banks that had purchased credit insurance from AIG." 

1. Statement for Senate Committee on Banking, Housing and Urban Affairs Subcommittee  on Financial Institutions and Consumer Protection.


P.S. (29th Sept 2014). According this Huffington article, Goldman Sachs managed to help itself to $2.9bn of taxpayers' money as part of the taxpayer funded bail out of AIG.

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