Tag Archives: Implicit subsidy

Who benefits from the implicit subsidy to ‘too big to fail’ banks?

Rhiannon Sowerbutts and Peter Zimmerman

Governments have often supported troubled banks whose failure would damage the wider economy. The expectation of such bailouts amounts to free insurance for those who have lent money to these ‘too big to fail’ (TBTF) banks. This amounts to an ‘implicit subsidy’ from the government, with a value that may be as large as £100bn. But where does this money go? We think most of the benefit goes to those who own or work for banks. But verifying this empirically is a challenge requiring further research.
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Filed under Banking, Financial Stability