The US government effectively guarantees the big money center banks can not fail. This is done partly so that companies can transfer enormous sums thru these banks without fear they'll lose their cash when the banks fail. It is also done to prevent a huge domino effect where JPMorgan, Bank of America Corp., Citigroup etc would all fail in a massive panic if one of them went down. This US government promise lowers the cost of money of big banks as compared to what small banks pay. The Bloomberg editors oppose this subsidy. Click thru and read the whole thing.

Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers -- Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz -- put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.

This subsidy makes smaller banks less competitive even though many of the smaller banks are more efficient and do a better job of assessing loan risks.We get more bad loans and a less efficient economy.

Parasitism takes so many forms.