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Opinion
Mark Whitehouse

Measuring the Handouts to Big Banks

New research from the New York Fed supports the idea that the largest banks present an unacceptable threat to the economy.

The largest U.S. banks and their lobbyists have been trying hard to counteract the growing impression that they present an unacceptable threat to the economy. In a new series of papers, the Federal Reserve Bank of New York offers some evidence that they probably won't like.

Critics of the big banks assert that repeated government bailouts have created a perverse incentive: The bigger and more systemically important a bank becomes, the more certain its creditors can be that they will get rescued in an emergency. Such too-big-to-fail status, the logic goes, allows banks to borrow more cheaply than they otherwise would -- a taxpayer subsidy that encourages them to take the kind of risks that lead to disasters.