Key Charts - Size and Structure
Borrowing Subsidy for Too-Big-To-Fail Banks has Declined Since the Crisis: GAO
- Maturity Mismatch & Average Bond Yield Spread: As stated in the GAO report, maturity mismatch is the difference between short term debt and cash divided by total liabilities. Average bond yield spread is the difference between the yield on a bond and Treasury bond with similar maturity. The yield spread measures the price investors charge a bank holding company to borrow to offset potential credit risk.
- Findings - As can be seen from the figures below, maturity mismatch fell dramatically from an average of 17.87 in 2008 to -1.04 in 2013, suggesting that bank holding companies have dramatically reduced their short term, more volatile, liabilities while at the same time retaining more cash and other liquid assets. A similar decline, though not as dramatic, occurred with average bond yields which fell roughly 300 basis points between 2008 and 2013, suggesting a general belief amongst the investing public that bank holding companies have become more financially stable and less prone to significant credit risks.
- Possible Reasons - Both findings could be the result of increased regulatory requirements stemming from the Dodd-Frank Act and Basel III, amongst other regulations, and/or a general shift by bank holding companies to rely less on short term liabilities.
Sources: GAO, Milken Institute.
GAO Report: Government Support for Bank Holding Companies