Graph of the week: too big to fail?
This is truely an amazing picture. And I don't think that it looks any different in Europe. What this means is two things: we have not solved the issue of "two big to fail". When banks fail, they will generate an enormous cost. The new banking architecture in Europe is aiming to ensure that this cost does not fall upon the taxpayer. But it will fall on someone and that someone will not be happy. I am not even sure that "no taxpayer" involvement is credible, but we will no doubt find out in practice (feels suspicioulsy like the "no bail-out clause", which was non-credible right from its inception).
Naturally, bigger banks amass greater financial expertise and can therefore, intermediate more effectively, (at least in theory). But the scope for monopolistic competition becomes also bigger and I wonder whether the consumer does not bear the cost of the "dead weight loss" that they generate. Monopoly authories (or the FTC in the US) would need to examine exactly how much higher prices are than banks' marginal costs.
