Too Big to Fail Is Bigger Than You Think - Bloomberg View: "Problem is, too-big-to-fail status is an asset in itself. If equity investors expect to benefit from government bailouts in the future, they will place a higher value on the bank's stock today. As a result, the measured distance to default will also be greater, and the bank's counterfactual cost of borrowing -- along with the estimate of its taxpayer subsidy -- will be erroneously low. . . . It's crucial that we get our math as right as we can when measuring the taxpayer subsidy. As long as it exists, we're giving banks the wrong incentives."
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