OVERNIGHT FINANCE: GAO: Big banks’ advantage shrinks

TOMORROW STARTS TONIGHT – GAO: BIG BANKS’ ‘TOO BIG TO FAIL’ ADVANTAGE SHRINKING. With just three words — “may have diminished” — the nonpartisan Government Accountability Office (GAO) released a report that launched big-bank bashers and defenders into an all-out wonk war.

We’ve got Sen. Sherrod Brown’s (D-Ohio) reaction lower down. But first...

My take for The Hill: “The advantage that big banks have over their smaller rivals has diminished since 2008, the Government Accountability Office concluded Thursday in a new report likely to reignite the debate over whether institutions are ‘too big to fail.’ The GAO report found the new regulations from the Dodd-Frank financial reform law have lowered the risk of banks needing a federal bailout.

— WHAT THE GAO FOUND: "Our analysis suggests that large bank holding companies had lower funding costs than smaller ones during the financial crisis but provides mixed evidence of such advantages in recent years," said Lawrance L. Evans, GAO's director of financial markets and community investments, at a Senate Banking subcommittee on financial institutions hearing on the report.

But while Evans said the funding advantage enjoyed by the big banks ‘may have declined or reversed’ since the 2008 crash, “it may take another crisis to truly test the effectiveness of financial reform." My storyhttp://bit.ly/1qu3NB2.

— WHAT THE GAO DIDN’T FIND: Conclusive results. Even Sen. Pat Toomey (R-Pa.), the top Republican on Brown’s subcommittee, dubbed the report “inconclusive.” And Financial Services Forum President Rob Nichols said, “my guess is that it won’t end the debate” in an interview with Bloomberg’s Peter Cooke. Watch that here: http://bloom.bg/1zA6GG3.

BROWN'S POST-GAME TALK AFTER GAO HEARING: Here's what Sherrod Brown — who will likely be the top Democrat on the Banking Committee after midterms — had to say about the GAO report:

— So was the GAO report effective? "I think it continued to build momentum in the public debate... All of this plays into that. The more the public knows, the more my colleagues know, the more the interest grows."

— Were you surprised that some of the models showed that some of the banks had a disadvantage? "GAO often times takes a, 'on one-hand, on the other hand' approach. And GAO, you know, went to the U.S. Chamber of Commerce and used industry studies. The industry pays for a lot of good studies for itself... there's no surprise there... But the acknowledgment is that 'too big to fail' still exists. It's gotten better -- until it hasn't, until something bad happens... I'm not disappointed in the study. I have some disappointment in the methodology of where they started."

— So what's next? Does this study yield another study? "I don't know yet, we'll figure that out."

THIS IS OVERNIGHT FINANCE, and I’ve got lots of Ex-Im fall-out from Sen. Joe Manchin (D-W.Va.) in our countdown below... Keep reading. Tweet: @kevcirilli; email: kcirilli@thehill.com; and subscribe: http://thehill.com/signup/48.

PROGRAMMING NOTE — What a day, huh? OVERNIGHT is on vacation until recess is finished. THANK YOU for reading. And please shoot me a note about how I can improve. I am, by the way, NOT on vacation in August (except for a few weekend trips back home to Delco) and I’m all ears for story ideas.

HAPPENING NOW – BIG STORY – HOUSE DELAYING RECESS TO ADDRESS BORDER.  The Hill’s Cristina Marcos reports: “House Republicans plan to delay their August recess to stay in Washington until they have enough votes to pass a bill responding to the border crisis.

“GOP leaders pulled legislation from the schedule Thursday after it became clear the votes weren’t there to pass a $659 million supplemental funding bill.

“But just as it appeared the conference would leave town for a five-week recess having done nothing to respond to the crisis, Republicans held a closed-door conference meeting and emerged staying they would extend their workweek to try to get something done. Read more: http://bit.ly/UOHsDV

STOCKS TUMBLE... BAD. Caroline Valetkevitch for Reuters: “The S&P 500 posted its worst daily decline since April and first monthly drop since January on Thursday as economic data sparked concern that the Federal Reserve could raise interest rates sooner than some have expected.

“Data showing that U.S. labor costs recorded their biggest gain in more than 5-1/2 years in the second quarter came a day after the Fed upgraded its assessment of the U.S. economy while reiterating it was in no hurry to raise rates. Problems in overseas economies added to the bearish tone, with Argentina defaulting on its debt for the second time in 12 years.” http://reut.rs/1qO8KcG.

DAYS UNTIL EX-IM EXPIRES: 61. Last night in a surprise maneuver, Sens. Joe Manchin (D-W.Va.) and Mark Kirk (R-Ill.) introduced a five-year reauthorization bill for the Export-Import Bank. The kicker: Gone were the provisions on coal, which would’ve reversed an Ex-Im ban on financing coal projects. Manchin is a huge coal country Democrat.

Three quick Q’s for Manchin...

1.) So what now? “We’re in the process. We have the coal amendment and we have the sponsors for the coal amendment. We’re working with leadership and [Senate Majority Leader Harry Reid (D-Nev.)]. The House has a five-amendment process and we’ll wait to see what they do.”

2.) September the timetable? “I would hope so, yeah.”

3.) Will you support Ex-Im reauthorization without coal provisions? “We’re looking at everything... They’re both very important. I think Ex-Im is a great tool that’s been underutilized for small businesses around America... But I also so strongly believe that you can’t live in a bubble where you think people aren’t going to coal – [these provisions] are a way to help support clean coal technology.”

CAUGHT – CIA SPIED ON SENATE, via Julian Hattem: “CIA officials improperly hacked the Senate Intelligence Committee’s computers as staffers compiled a report on ‘enhanced interrogation’ techniques, the spy agency’s inspector general has concluded.” http://bit.ly/1xFFCSM.

CANTOR BIDS FAREWELL. Today was House Majority Leader Eric Cantor’s (R-Va.) last day. “This is a privilege of a lifetime,” Cantor said. Cristina Marcos recaps here: http://bit.ly/1pJIs4Y.

BIAS ALERT: SPORTS BLINK – COLE HAMELS TO CONGRESS? Tomas Navia for the hometown paper on my hometown pitcher: “Philadelphia Phillies starting pitcher Cole Hamels says there’s a ‘possibility’ he could trade the pitchers’ mound for the halls of the Capitol.

“‘There’s always possibilities. Never say never,’ the Major League Baseball star told The Hill, when asked if he would consider a run for public office much like Rep. Jon Runyan (R-N.J.). The retiring congressman is a former National Football League offensive tackle for the Philadelphia Eagles.” http://bit.ly/1uM4fRz.

PAGING PIKETTY – GLOBAL INEQUALITY WORSE THAN U.S. Pedro De Costa for The Wall Street Journal: “The income gap between rich and poor nations is more severe than the more highly publicized disparities between the top and bottom of the U.S. income ladder, according to a new study from the Federal Reserve Bank of St. Louis.

“‘While not to diminish the ample income inequality in the U.S., a focus on absolute inequality would suggest income disparity among the world’s population is a far greater concern,’ write Lowell Ricketts and Christopher Waller, economic researchers at the St. Louis Fed...

“The St. Louis Fed researchers argue the U.S. problem is dwarfed by the global income gap. The median income for the poorest 10% of Americans is still more than seven times greater than the median income of the population in the poorest 19 developing nations, they say.” http://on.wsj.com/1xGY9OD.

G7 COUNTRIES ADD MORE SANCTIONS ON RUSSIA. Sandrine Rastello and Helene Fouquet for Bloomberg: “Group of Seven countries will oppose new World Bank projects in Russia to inflict further pain on Vladimir Putin’s regime, according to three government officials with knowledge of the agreement.” http://bloom.bg/1AEFfML.

STILL NO DEAL – HIGHWAY TRUST. It’s coming down to the wire for Highway, Border, and Veterans Affairs in the Senate. Keith Laing for The Hill: “The House on Thursday shot down legislation from the Senate that would have extended federal transportation funding until December. The 272-150 vote puts pressure on Senate Democrats to accept the House-passed transportation bill, which would provide funding until next spring and avert a late summer shutdown of construction projects.” http://bit.ly/1of2nr4

NOTABLE: WYDEN CALLS FOR INTERNET TAX BREAK, via Ramsey Cox: “Senate Finance Committee Chairman Ron Wyden (D-Ore.) called on the Senate to pass a short-term extension of a ban on Internet access taxes.” http://bit.ly/1n8fUAw.

BIPARTISANSHIP AT WORK, via Bernie Becker: “The House Ways and Means Committee easily cleared a measure that allows people with disabilities to have tax-free savings accounts.” http://bit.ly/1puiRQi.

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