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'The Biggest Kiss,' cont.

4:34 PM, Feb 6, 2013 • By MICHAEL WARREN
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At the Washington Examiner, Tim Carney points to JPMorgan CEO Jamie Dimon's admission in an interview that the Dodd-Frank financial regulation law makes it "tougher for smaller players to enter the market." Dimon says the law widens the "moat" that surrounds big banks like JPMorgan and keep smaller banks from competing.

That was the same criticism of Dodd-Frank made last year in THE WEEKLY STANDARD by Boyden Gray and Adam White. Here's an excerpt:

According to the Treasury secretary, who chairs the Financial Stability Oversight Council, the council will soon begin designating large financial institutions as “systemically important.” When it does, the council will be making official a status that before Dodd-Frank was strictly unofficial and conjectural.

Official SIFI status will be worth billions of dollars to the companies that receive it, as demonstrated by the ever-heightening mountain of research that has attempted to quantify its benefits. Before Dodd-Frank, a handful of big banks enjoyed unofficial too-big-to-fail status among investors, simply because of the banks’ disproportionate size—$100 billion in assets was a common benchmark. Because those banks were seen as enjoying the likely protection of government intervention to prevent their failure, investors saw the banks as less risky than their “small enough to fail” competitors. Accordingly, the big banks were able to attract investment capital at much lower cost. 

That has amounted to an immense subsidy, worth “about $4 billion per year before the crisis, increasing to $60 billion during the crisis, topping $84 billion in 2008,” according to a recent paper by the World Bank’s Deniz Anginer and Syracuse University’s A. Joseph Warburton. Other studies, including one by the Bank of England, presented similar findings. 

Instead of ending that subsidy to big banks, Dodd-Frank intensifies it in at least three ways. First, by officially designating SIFIs, Dodd-Frank eliminates any uncertainty as to whether a bank is actually considered too big to fail. Second, by lowering the asset threshold from $100 billion to $50 billion, it increases the number of likely SIFIs. And third, by including not just banks but also nonbank financial companies, Dodd-Frank further expands the universe of possible SIFIs.

Read the whole thing here.

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