The too-big-to-fail problem is often discussed as a matter of fairness but really, for community bankers, it is a matter of survival. Too-big-to-fail status is a tremendous competitive advantage.
Too-big-to-fail banks have a substantial cost-of-funds advantage over community banks. Because people understand that government will prevent large banks from failing, they are willing to accept lower interest rates on deposit accounts in exchange for safety. Everyone knows the government allows troubled community banks to fail, so those . . .
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