When they loose this status, large financial institutions will also loose important competitive advantages over smaller and less interconnected institutions. At present, systemically important banks enjoy an implicit subsidy on their funding costs. This is apparent in credit ratings, for instance. Credit rating agencies assign higher ratings to large banks than their intrinsic financial strength would justify.
The rating enhancement reflects the probability of government support and can be as large as five notches. For smaller banks, the enhancement is lower or even zero, because it is perceived that smaller banks are less likely to receive government support when they get in trouble. Effective resolution measures will thus eliminate the support-related rating advantage and lower funding costs of large banks.