Making things tougher for surviving banks “was not the idea” when they allowed a state guarantee of bank liabilities to lapse two years after it was introduced – like in the rest of Europe – to contain fallout of the Lehman bankruptcy.
What is the upside to credibly removing the TBTF guarantee? Easy, no bailouts.
What’s the downside? Hm.
Well, what do you think happens when risk goes up?
Costs go up, silly.