Thus a natural tendency to become smaller and less interconnected might evolve, again making the bail-in threat more credible ex ante. If capital requirements are higher, not only the probability of failure is reduced markedly, but also shareholders and creditors would bear more of the losses incurred by the bank.
Thus banks can no longer benefit from their former “too big to fail” status by borrowing cheaply. Here I can see many practitioners objecting on the grounds that capital is too scarce and too expensive. In this line of reasoning, shareholders have a certain expectation about the return on capital.