WASHINGTON — The top five U.S. financial institutions benefited from a funding advantage in key markets prior to the enactment of regulatory reform, according to a study released Tuesday by economists at the Federal Reserve Bank of New York.

Banks like the JPMorgan Chase & Co., Citigroup Inc., and Bank of America Corp. gain an additional discount from bond investors by about 31 basis points compared to smaller institutions, according to Joao Santos, a vice president at the New York Fed and the author of the study.

The economists called the results statistically significant, but acknowledged that the sample of data did not capture changes made by the Dodd-Frank Act of 2010, which sought to end big banks' funding advantage, among other things.

"Since the sample ends in 2009, these findings do not reflect any changes in bond investors' expectations resulting from the regulatory interventions that occurred during the financial crisis," wrote Santos. "Similarly, our findings do not account for any effects resulting from the regulatory changes that were introduced following the financial crisis, in particular those that aim at addressing the 'too big to fail' problem."

Still, an attempt to quantify the size of the subsidy that the largest banks receive as a result of the perception they are "too big to fail" is significant as it continues to be a source of debate.

There has been a growing body of studies on the topic that have sought to capture the likelihood that a bank would receive government support if it ran into trouble. Some studies have also sought to consider the cost of deposits and bank merger premiums, while others point to evidence that banks believed to be "too big to fail" take on more risk.

In his paper, Santos chose to focus his study specifically on funding advantages by the largest financial, nonbank, and nonfinancial institutions as compared to their smaller counterparts in the bond market.

"The evidence presented in this paper on the additional discount that bond investors offer the largest banks… is novel and consistent with the idea that investors perceive the largest U.S. banks to be 'too big to fail,'" Santos wrote.

The study was among nearly a dozen research papers released by the New York Fed on a broad array of topics ranging from the size of financial institutions, to complexity and banks' resolvability. Collectively, the papers are intended to build on a framework to help analyze difficult topics in a post-financial crisis era.

According to other papers released Tuesday, the biggest banks also take on bigger risks than their peers, while facing lower operating costs.

The funding advantage has been difficult to quantify. Last year, Bloomberg News tried to calculate what the cost advantage would be based on a study by an economist at the International Monetary Fund. They estimated it was as high as $83 billion.

In his study, Santos first compares the credit spreads over Treasuries of the same maturity that are issued by the largest banks and the smaller banks, while controlling for the bond risk and other factors that could affect bond spreads.

Next, he expanded the analysis to compare the largest banks' cost advantage against smaller banks with those cost advantages between the large nonfinancial institutions and the largest non-financial corporations compared to their smaller peers.

"If what drives the difference between the cost of bond issuance by the largest and smaller banks is a size-specific factor or a perception by investors that the largest firms are all 'too big to fail,' then the cost advantage of the largest banks should be similar to the cost advantages that the largest nonbanks and the largest nonfinancial corporations may also have in the bond market," Santos wrote.

Alternatively, if investors believed the largest banks are more likely to be "too big to fail," then those banks would benefit for a larger cost advantage then nonbanks or nonfinancial companies.

Results of the study showed that the largest banks, nonbanks and nonfinancial corporations all benefit from a discount compared to their smaller peers.

And while the data could be interpreted that the "too big to fail" status could be applied beyond banks, data still suggests the largest banks receive the biggest funding advantage.

"Our evidence that the largest banks benefit from a bigger discount than the largest nonbanks and the largest nonfinancial corporations suggests that investors believe the largest banks are more likely to be rescued if they get into financial difficulties," wrote Santos.

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