Regulating the amount of equity that a bank must hold may therefore be reflected in a higher weighted average cost of funding. However, the higher private costs that come from differential tax treatment are not social costs. Government now has a policy instrument – the bank levy, now yielding £2.5bn a year – that directly influences UK bank costs. The higher tax yield from more equity could for example be offset by lowering the levy, should that appear desirable to Government.
There is ample evidence of credit provision pre-crisis on unduly easy terms, for example in parts of the mortgage market. However, the possible impacts on the price of bank credit are very small in absolute terms, and much less than the 0.25% changes in official interest rates that commonly occurred before the crisis.
While the costs to banks of funding themselves would rise as a result of the loss-absorbency recommendations, the increases would be relatively limited and any costs to the economy as a whole would be smaller still.
Using cost as an excuse to "NOT" revert the banks to the way they were [separate institutions] will not wash as the cost to the world of them being amalgamated has been a disaster...