April 20th Edition

The role of large banks in the financial system has been a contentious political and policy debate. In particular, critics have argued that big banks benefit from an implicit taxpayer subsidy stemming from their ability to borrow at lower cost. The argument pins this lower borrowing cost on perceived reduced risk due to the fact that these banks will be bailed out by the government if they get in trouble. That is the heart of the notion of “too big to fail” (TBTF).

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