How Big Is the Implicit Subsidy for Banks Considered Too Important to Fail?
Chapter 3, Global Financial Stability Report, April 2014
32 Pages Posted: 2 Apr 2014
Date Written: March 31, 2014
This paper looks at the issue of too-important-to-fail and provides new estimates of the implicit funding subsidy received by systemically important banks. The subsidy comes from the expectation that the government will support large banks if they get into distress. Although financial reforms have helped reduce this subsidy, it remains sizeable. Policymakers should aim to remove this advantage to protect taxpayers, ensure a level playing field, and promote financial stability.
Keywords: too-big-to-fail, too-important-to-fail, banks, implicit subsidy, financial reforms
JEL Classification: G21, G24, G28
Suggested Citation: Suggested Citation