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

See all articles by Frederic J. Lambert

Frederic J. Lambert

International Monetary Fund (IMF)

Kenichi Ueda

University of Tokyo - Faculty of Economics

Pragyan Deb

International Monetary Fund (IMF); London School of Economics & Political Science (LSE) - Financial Markets Group

Dale F. Gray

International Monetary Fund (IMF); MF Risk

Pierpaolo Grippa

International Monetary Fund (IMF) - Monetary and Capital Markets Department

Date Written: March 31, 2014

Abstract

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

Lambert, Frederic J. and Ueda, Kenichi and Deb, Pragyan and Gray, Dale F. and Grippa, Pierpaolo, How Big Is the Implicit Subsidy for Banks Considered Too Important to Fail? (March 31, 2014). Chapter 3, Global Financial Stability Report, April 2014. Available at SSRN: https://ssrn.com/abstract=2419118

Frederic J. Lambert (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Kenichi Ueda

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Pragyan Deb

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Dale F. Gray

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

MF Risk

5921 Searl Terrace
Bethesda, MD 20816

Pierpaolo Grippa

International Monetary Fund (IMF) - Monetary and Capital Markets Department ( email )

700 19th St NW
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
241
Abstract Views
899
rank
127,941
PlumX Metrics