A 2012 study for the International Monetary Fund found that government backstops lower big banks’ borrowing costs by about eight-tenths of a percentage point. (This markdown applies to all of a big bank’s liabilities, including customer deposits and bonds.) Applied to the liabilities of the ten American banks with the most assets, this government-guarantee advantage translates to an annual taxpayer subsidy of $83 billion. As a Bloomberg editorial noted in February, “To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.” Another study, published earlier this year by economists at Syracuse University, Virginia Tech, and New York University, tracked the implicit subsidy provided to large institutions over a 20-year period. The researchers found that, between 1990 and 2010, the value of the subsidy averaged around $20 billion a year — topping $100 billion in 2009.

The Bank of England’s Haldane calls this practice a “self-perpetuating ‘doom loop.’ ” Decades ago, policymakers proved they would not hesitate to resort to bailouts if they detected the slightest hint of market contagion. As the banks grow larger and more interconnected, this implicit government guarantee of their debt becomes ever stronger in the eyes of investors…

Rather than eliminating “too big to fail,” Dodd-Frank enshrines and expands it. The law created the Financial Stability Oversight Council with the stated goal of eliminating the expectation “on the part of shareholders, creditors, and counterparties of [large financial] companies that the government will shield them from losses in the event of failure.” To this end, large banks and other financial companies designated as “systemically important” are supposedly subject to stringent oversight by the Federal Reserve. The Fed and the FSOC even have the power (on paper, at least) to break up “systemically important” big banks if they pose a “grave threat” to the stability of the financial system. But given the continued funding advantage enjoyed by bigger banks, it is clear that financial markets continue to view the megabanks as holding “get out of jail free” cards supplied by Washington. And why shouldn’t they? The new oversight council will do little to change the behavior of industry players, and thus nothing to stem the growth of Wall Street’s big banks.