TBTF is Costly....more costly than saving the whales!

The Great Gretchen Morgenson addresses the myriad of problems of tax payer support for the various support programs of the Fed that have been used to keep the big banks afloat. Her article in this past Sunday's NY Times Business section She cites a report by Dean Baker of CEPR where he estimates the discounted cost of funds afforded to the big banks comes out to about $34.1 billion a year. He derives at this by looking at the spread between the cost of funds for small banks who have not received the bulk of the government support and the large banks and bank holding companies that have.

Generally speaking, liquidity programs and the various Fed programs like the TLGP (where the government guarantees short term liabilities of the BHC in exchange for a small fee) have taken away the major competitive advantage that the small community banks have; access to cheap and reliable deposit accounts. The closeness to the localities where the community banks operate in gives them a competitive advantage that the large BHC cannot easily replicate. After all, the one competitive thing that small fish have that whales do not is agility and maneuverability in tight spaces.