And there is, of course – a limited liability company is basically a means of protecting its owners from the private consequences of the company becoming bankrupt. Being able to fund a business operation through borrowing is, of course, necessary and, in most cases, effective. In efficient markets, lenders’ risks are handled by means of interest rates and contract clauses. The limited liability company is thus a historically wealth-generating social institution. Nevertheless, the example illustrates that the higher cost of funding through equity is more a matter of private than social costs. Another factor that separates the costs for own and borrowed funds is the tax system. Companies may deduct interest on loans, but pay corporate tax for profits on equity. But this is just a private economic difference – from the social perspective, the only difference is the subsidisation of debt-financing in preference to equity. This specifically applies to banks that may be systemically important – it would be socially costly to allow them to file for bankruptcy. So the market often expects that the state will save a bank that is on the ropes, one way or another. These so-called implied guarantees create even greater differences between social and private costs, and risk leading the banks to take even greater risks. Banks are vulnerable, contagious and sometimes systemically important. There are great differences between private and social cost-benefit calculations. Economic theory and empirical experience gives us good reason to regulate banks.
As the banks largely obtain funding from loans from each other and other financial  1  Modigliani, F & Miller, M H (1958): “The Cost of Capital, Corporation Finance and the Theory of Investment”, American Economic Review  BIS central bankers’ speeches  3  institutions, the lack of confidence led to a drying-up of liquidity within both the financial and real economies. The crisis was met in a somewhat similar way by the United States, Europe and Sweden On the whole, the financial crisis was met in a similar way by all OECD countries. The automatic stabilisers were put to work in fiscal policy, and many countries launched targeted fiscal policy stimulation measures to break the fall. The central banks reduced interest rates to very low levels. Almost all economies also took measures to prevent even deeper problems in the financial sector. In the United States, where the crisis originated, the Federal Reserve and other authorities provided emergency liquidity assistance to the banks and other parts of the financial system. The Department of the Treasury’s TARP (Troubled Assets Relief Program) purchased problem assets from banks and other financial institutions. The guarantee programme for the banks’ deposits was expanded. In addition, in 2009, a stress test was carried out of the 19 largest US banks as of the spring of 2009. Ten of these banks were deemed to need new capital, which they also succeeded in raising. It seems likely that this test helped restore confidence in the equity/assets ratios of the US banking system.