and finance, vol. 80, p. 2131 – 2161. tucker, p ( 2010 ), resolution of large and complex financial institutions : the big issues, available at http : / / www. bankofengland. co. uk / publications / speeches / 2010 / speech431. pdf weitzman, m l ( 1974 ), “ prices vs. quantities ”, review of economic studies, vol. 41, p. 477 – 91. annex table 1 present value of output losses ( % of 2009 gdp ) fraction of initial output loss which is permanent 25 % 50 % 100 % uk world source : bank calculations table 2 average ratings difference for a sample of banks and building societies 1. 56 1. 68 1. 63 uk global average 1. 94 2. 36 2. 21 4. 00 2. 89 3. 24 average ( 2007 – 09 ) 2. 50 2. 31 2. 36 1. all figures are year - end 2. the uk sample contains 16 banks and building societies in 2007 and 2008 and 13 in 2009. the global sample contains a sample of 26 banks across a range of sizes and countries for 2007 and 28 banks in 2008 and 2009. source : moody ’ s and bank calculations. table 3 average ratings difference for uk banks and building societies ( a ) mean max difference in sample min difference in sample large banks 2. 67 small banks 0. 14 large banks 2. 78 small banks 0. 86 large banks 4. 67 small banks 3. 43 large banks 3. 37 small banks 1. 48 category average ( 2007 – 2009 ) ( a ) the “ large ” category includes hsbc, barclays, rbs, lloyds tsb, alliance & leicester and bradford & bingley ( up to 2008 ), and nationwide. the “ small ” category includes building societies : chelsea, coventry, leeds, principality, skipton, west bromwich and yorkshire. the ratings are year - end. source : moody ’ s and bank calculations. table 4 estimated subsidy for uk banks and building societies ( £bn ) and global banks ( $ bn ) chart 1 average assets relative to gdp of us commercial banks ( a ) chart 2 concentration of the us banking system ( b ) chart 3 largest uk company ’ s assets in each sector relative to gdp

11 typically, these involve separation of bank activities, either across business lines or geographies. in essence, this is the prohibition solution to the systemic pollution problem. this sets the scene for a great debate. it is not a new one. the taxation versus prohibition question crops up repeatedly in public choice economics. for centuries it has been central to the international trade debate on the use of quotas versus subsidies. during this century, it has become central to the debate on appropriate policies to curtail carbon emissions. 12 in making these choices, economists have often drawn on martin weitzman ’ s classic public goods framework from the early 1970s. 13 under this framework, the optimal amount of pollution control is found by equating the marginal social benefits of pollution - control and the marginal private costs of this control. with no uncertainty about either costs or benefits, a policymaker would be indifferent between taxation and restrictions when striking this cost / benefit balance. in the real world, there is considerable uncertainty about both costs and benefits. weitzman ’ s framework tells us how to choose between pollution - control instruments in this setting. if the marginal social benefits foregone of the wrong choice are large, relative to the private costs incurred, then quantitative restrictions are optimal. why? because fixing quantities to achieve pollution control, while letting prices vary, does not have large private costs. when the marginal social benefit curve is steeper than the marginal private cost curve, restrictions dominate. the results flip when the marginal cost / benefit trade - offs are reversed. if the private costs of the wrong choice are high, relative to the social benefits foregone, fixing these costs through taxation is likely to deliver the better welfare outcome. when the marginal social benefit curve is flatter than the marginal private cost curve, taxation dominates. so the choice of taxation versus prohibition in controlling pollution is ultimately an empirical issue. to illustrate the framework, consider the path of financial regulation in the us over the past century. the us announcements in january are in many respects redolent of us financial reforms enacted during the late 1920s and early 1930s. then, restrictions were imposed on both bank size and scope, in the form of the mcfadden ( 1927 ) and glass - steagall acts. the history of both, viewed through weitzman ’ s lens, is illuminating for today ’ s debate. basel committee on banking supervision ( 2009 ). for example, brunnermeier et al ( 2009 ), nyu stern school