In theory, the allocation of responsibility for risk-bearing between the private sector and the central bank depends upon the private cost of capital. In order to attract, or at least retain, capital, a private financial institution must earn at minimum the overall economy’s marginal cost of riskless capital, adjusted for firm-specific risk.
In competitive financial markets, the greater the leverage, the higher the rate of return, before adjustment for risk. If private financial institutions have to absorb all financial risk, then the degree to which they can leverage will be restrained, the financial sector smaller, and its contribution to the economy more limited.