'Too Big to Fail' still thriving

Wed Apr 2, 2014 6:41am EDT
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By Mike Dolan

LONDON (Reuters) - Five years after Lehman Brothers' seismic bust and just two years after euro member Greece defaulted, the concept of being too big or too strategic to fail is alive and well.

Although unwritten government guarantees of big banks have been at the heart of taxpayer outrage over being left on the hook for the missteps of giant corporations, few politicians or voters are keen to embrace another 'Lehman moment' or the global economic implosion that ensued.

Tighter regulation on capital buffers and risk-taking, the insistence that banks have 'living wills' for any future workout procedure, creditor 'bail-in' bonds and even the ring-fencing of certain operations within banks have all been preferred routes to limit the exposure of both society and shareholders.

Yet, as an International Monetary Fund study detailed this week, there's still a running assumption that governments would again rescue the biggest banks in the event of another panic.

The IMF found that at least through 2012 the euro zone's biggest banks still benefited from an implicit taxpayer subsidy of $90 billion to $300 billion. Subsidies for UK and Japanese banks may have been as high as $110 billion and they ranged from $20 billion to $70 billion in the United States.

So the risk, you might assume, is still loaded on the government's tab.

Yet government borrowing costs across the western world and beyond have rarely, if ever, been lower.

GREEK RETURNS   Continued...

The Lehman Brothers headquarters in New York is seen September 10, 2008. REUTERS/Brendan McDermid