Thus, they have a funding advantage over banks that are not systemically important. All this makes the too-big-to-fail problem even bigger. Against this backdrop, making banks more resilient can only be the first step toward a more stable financial system. The next step must be to ensure that even large and interconnected banks can fail without causing a systemic crisis.
Toward this end, a new international standard on recovery and resolution of systemically important banks has been developed. Having this new standard is a major step forward. However, at the end of the day, the willingness to let an institution go bankrupt will be crucial. And that is a political rather than an economic decision.