Today, Federal Reserve Chairman Ben Bernanke testified before the Senate Banking Committee. Sen. Elizabeth Warren (D-MA) asked Bernanke about the $83.5 billion subsidy that Big Banks get every year from American taxpayers.

Warren suggested that Bernanke support a policy of ending this subsidy. After a back and forth with him about the question of “too big to fail,” Warren suggested that Big Banks — backed by the government — are causing smaller banks to get “smashed.”

WARREN: $83 billion says that there really will be a bailout for the largest financial institutions if they fail.

BERNANKE:That’s the expectation of markets, but that doesn’t mean we have to do it. […] Too big to fail is not absolute. […]

WARREN: It is working like an insurance policy. Ordinary folks pay for home owners insurance, ordinary folks pay for car insurance, and these big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year simply because people believe that the government would step in and bail them out. And I’m just saying, if they’re getting it, why shouldn’t they pay for it?

BERNANKE: I think we should get rid of it. […]

WARREN: I know we’re both trying to go in the same direction, I’m just pointing out that in all that space in between what’s happening is the Big Banks are getting a terrific break, and the little banks are just getting smashed on this, they’re not getting that kind of break, and that has long-term impact for all of the financial system.

BERNANKE: I agree with you 100 percent.

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