Thus the institution has funds available to it at a price that does fully internalize the social costs associated with its operations. The consequences are a diminution of market discipline, inefficient allocation of capital, the socialization of losses from supposedly market-based activities, and a competitive advantage for the large institution compared to smaller banks.
Provides useable guidance about the magnitude of the policy adjustment that may be necessary. In a paper on fiscal sustainability that my colleagues Anton Belgrave, Jason LaCorbiniere, Denisa Applewhaite and I will present at this conference, we provide an example economic analysis which we believe is practical in this sense. In the panel discussion tomorrow I hope we can explore this question more fully.