The Implicit Subsidy of Banks

15 Pages Posted: 3 Jun 2012

Date Written: May 28, 2012

Abstract

This paper examines the implicit subsidy of UK banks by the government and the associated distortions in the financial system. It explains why the subsidy arises, why it is a public policy concern and explores how it can be quantified.

Quantifying the implicit subsidy to banks has generated considerable interest over recent years. The numbers are striking, both in their sheer scale, but also in their variation. Estimates of the implicit subsidy to major UK banks vary from around £6 billion (Oxera (2011)) to over £100 billion (Bank of England (2010)). This paper explains the divergence between these estimates, examines their dependence on differing underlying assumptions, and proposes a new alternative means of quantification.

Suggested Citation

Noss, Joseph and Sowerbutts, Rhiannon, The Implicit Subsidy of Banks (May 28, 2012). Bank of England Financial Stability Paper No. 15, Available at SSRN: https://ssrn.com/abstract=2071720

Joseph Noss (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Rhiannon Sowerbutts

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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