In an era of systemically important financial institutions, some US banks are now “too big to fail” and perhaps “too big to jail.” The debate continues as to whether the largest banks enjoy unfair competitive and cost advantages relative to their smaller brethren, especially due to market perceptions of a government guarantee. Federal Reserve Bank of New York researchers Anna Kovner, James Vickery and Lily Zhou find that constraining bank size could result in unintended higher costs for the economy and consumers. getAbstract recommends this illuminating paper to financial institution executives, policy makers and analysts for its insights into the pluses and minuses of big banking.
In this summary, you will learn
- What cost efficiencies big US banks enjoy,
- How large banks’ expenses differ from those of smaller banks and
- Why limiting bank size may incur significant economic costs.
About the Authors
Anna Kovner is a research officer at the Federal Reserve Bank of New York, where James Vickery is a senior economist and Lily Zhou is a senior research analyst.