This morning Bloomberg's editors published some genuinely stunning claims about big banks like Citigroup and JPMorgan:
What if we told you that, by our calculations, the largest US banks aren't really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from US taxpayers?
As Bloomberg's editors acknowledge, this is "a hard concept to swallow." They explain that when banks are "too big to fail," they can rely on government bailouts no matter what. That means lenders know the big banks won't fail, and therefore lend to them at lower rates. That in turn means big banks have much lower interest payments than other borrowers, by which they gain $83 billion per year, according to one study.
Put another way, the big banks make an extra $83 billion because taxpayers are subsidizing their risks. Bloomberg calls this an "implicit subsidy" that is equivalent to the government giving the banks 3% of all tax dollars collected.
The five biggest banks - JPMorgan, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs - save $64 billion on interest rates, which "is roughly their annual profits." In other words, as Bloomberg explains, the biggest banks "would just about break even in the absence of corporate welfare," as shown in the image above. "In large part, the profits they report are essentially transfers from taxpayers to their shareholders."