In the debate over financial reform, one of the major themes has been the need to protect the public purse from the cost of future bailouts by requiring too-big-to-fail banks to hold a larger buffer of private capital. In support of this requirement, and against bank lobby claims that it would raise their cost of funds and hence the price of credit, economists have weighed in with a standard argument from corporate finance, the Modigliani-Miller theorem.
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