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Fed Economist Says Big Bank Borrowing Advantage Increases Risk 

March 26, 2014
Cheyenne Hopkins, Craig Torres, Bloomberg Businessweek

The largest U.S. banks, including JPMorgan Chase & Co. and Citigroup Inc., have been able to borrow more cheaply in bond markets than smaller rivals, in part because of investor perceptions that they were too big to fail, according to a Federal Reserve Bank of New York researcher.

The five largest banks paid on average 0.31 percentage point less on A rated debt than their smaller peers, according to a paper released today by the Fed district bank based on data from 1985 until 2009.

“This insensitivity of financing costs to risk will encourage too-big-to-fail banks to take on greater risk,” Joao Santos, a vice president at the Fed bank, wrote in his paper. This “will drive the smaller banks that compete with them to also take on additional risk.”

Read more: Businessweek

 
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