Competing against Sifis ‘leads to higher risks’

But research finds weaker implied sovereign support reduces impact on non-Sifi competitors

Competing

Implicit government guarantees on banks deemed too big to fail drive smaller competitors to take on more risk, researchers have found. The findings add further justification to regulators’ efforts to ensure investors, rather than taxpayers, carry the cost of failure at a systemically important financial institution (Sifi).

Rafael Schiozer, of the think-tank Fundacao Getulio Vargas, together with Frederico Mourad and Ramon Vilarins of the Banco Central do Brasil, have measured the risk of banks

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