Excessive risk-taking implies costs for society: If risks materialize, taxpayers may face additional costs related to the need to rescue the bank. Regulatory reforms aimed at internalizing the external costs through, for example, higher loss absorbing capacity and provisions to facilitate the orderly resolution of TBTF banks thus have the potential to increase social welfare.
But these reforms may come at a net private cost for the affected banks as they will incur costs to comply with the new regulation and are likely to face higher funding costs.