Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

In testimony to the Senate Banking Committee this week, Ben Bernanke made a clear statement acknowledging that very large American banks receive implicit subsidies because the market believes they are too big to fail. This was one of the most forthright public statements on this topic by a top Fed official, and Mr. Bernanke should be congratulated for being honest and direct on this important point.

Today's Economist Perspectives from expert contributors.

Unfortunately, when it came to discussing how to bring down this subsidy – and addressing the problem of “too big to fail” financial institutions – Mr. Bernanke’s answers were disappointing.

Mr. Bernanke was pressed hard on these topics by Senator Elizabeth Warren, a Massachusetts Democrat – you can watch a clip of their exchange. The concerns that Senator Warren expressed are shared by some across the aisle – including Senator David Vitter, a Louisiana Republican, who said at the hearing, “There is growing bipartisan concern across the whole political spectrum about the fact — I believe it’s a fact — that ‘too big to fail’ is alive and well.”

At the hearing, Mr. Bernanke readily conceded that there is a “too big to fail” subsidy, in the form of cheaper funds than big banks would otherwise receive, because market participants think the government provides some downside protection, i.e., implicit insurance that limits losses. Even after the Dodd-Frank financial reform legislation, the extent of implicit creditor protection remains high.

Senator Warren cited a recent study by the staff at the International Monetary Fund, and Mr. Bernanke did not push back on the findings by those researchers. I recommend that you read the paper by Kenichi Ueda of the I.M.F. and Beatrice Weder di Mauro, a leading European academic. (I was previously director of the Research Department at the I.M.F., but I left that job in 2008 and had nothing to do with this paper.) Senator Warren also cited a Bloomberg View editorial on the issue, and a follow-up editorial; these put the subsidies around $83 billion. (The work by Bloomberg, for which I am also a commentator, has attracted some controversy. For an assessment I recommend a piece by Yves Smith and one by my M.I.T. colleague John E. Parsons; see also the latest in the Bloomberg View series, published Wednesday.)

There is a growing chorus of Wall Street “deniers,” claiming that big banks do not actually receive any funding advantage. This is a bizarre and indefensible position.

The G.A.O. is expected to report in detail on banking subsidies soon – we should thank Senator Sherrod Brown, an Ohio Democrat, and Senator Vitter for pushing them in this direction. (Senator Brown has been working long and hard on too-big-to-fail issues for years; now he is starting to get serious traction.) In the meantime, I also recommend “Too-Systemic-To-Fail: What Option Markets Imply About Sector-Wide Government Guarantees,” by Bryan Kelly, Hanno Lustig, and Stijn van Nieuwerburgh. Or if that is too technical, you could read one of Andrew G. Haldane’s brilliant speeches, like “The $100 Billion Question.” Mr. Haldane is a senior official at the Bank of England who speaks and writes with great clarity about both the scale of subsidies for global megabanks – and the distortion and damage this does to the rest of the economy.

And everyone on Wall Street must engage with “The Bankers’ New Clothes” by Anat Admati and Martin Hellwig. See Chapter 9 on the issue of bank subsidies (which are received by all banks, but to a greater degree when banks and bank holding companies are larger).

Unfortunately, Mr. Bernanke seems to be in denial about whether the problem of “too big to fail” is receding. This is about probabilities, and the market expectation is everything.

Mr. Bernanke’s view, as stated in the hearing, is that the market is wrong – there will be no bailouts. Market participants understand all too well that Mr. Bernanke’s promises are probably not time-consistent – meaning that he can say what he wants now, but in the next systemic financial crisis he would feel compelled by his legal mandate to provide an effective backstop to asset values and to many institutions.

For example, Mr. Bernanke cited the new liquidation powers granted under Dodd-Frank, which apply to bank holding companies. But the orderly resolution of any very large and complex cross-border financial institution is not really possible.

I am fully aware that the Federal Deposit Insurance Corporation and the Bank of England are trying to cooperate on this issue. This is a valiant effort but not one likely to succeed. In any big crisis, it is every national interest for itself.

The problems associated with cross-border failure would become more straightforward if the United States authorities would use their powers under the “living wills” provision of Title I in Dodd-Frank to force big financial institutions to become simpler – and to provide much higher levels of capital by country of operation. There is no indication that we are moving in this direction. In fact, William C. Dudley – president of the New York Fed – last year gave a speech in which even he suggested that the living wills process has not yet proved effective (or, in my view, even meaningful).

And Mr. Dudley recently sent the opposite signal to the market from what Mr. Bernanke was trying to convey on Tuesday. In a speech on Feb. 1, he floated the idea that we should consider:

“…to expand the range of financial intermediation activity that is directly backstopped by the central bank’s lender of last resort function. This expanded range could be defined either in terms of access by the types of firms that are systemically important in market-based finance, or by types of activity or assets.”

To be fair, Mr. Dudley also asked if we should allow as much risk in our financial system as our current arrangements permit. And he did emphasize that if insurance is provided, it should be paid for (good luck getting Wall Street to pay a fair premium for any government backstop).

The broader philosophy at the New York Fed has long been that, in the event of a crisis, it is important to “foam the runway.” The expression is a favorite of Timothy F. Geithner, former head of the New York Fed, and it was one of his guiding principles when he became Treasury secretary – with the implication that the authorities should do everything possible to cushion the blow for banking executives, shareholders, and creditors in the event of a systemic crisis (see Neil Barofsky’s book, “Bailout,” for context and details).

But such instincts long predate Mr. Geithner; the New York Fed has been in the bailout business for 100 years. You can trace its origins (and the Federal Reserve System) to the crisis of 1907.

Benjamin Strong arranged private bailouts on behalf of J.P. Morgan (the man) during the 1907 crisis. Mr. Strong went on to become the first president of the New York Fed and the dominant personality in the Federal Reserve System until his death in 1928.

And the modern Fed can do a great deal to help banks and their creditors at times of stress, including quantitative easing, which pushes up asset prices and therefore helps all balance sheets.

Market participants are wise not to take Mr. Bernanke at face value. And Senators Brown, Warren and Vitter are right to press Mr. Bernanke and his colleagues on these issues. Why should large banks get free insurance and implicit encouragement to become larger, take more risk and blow themselves up? The true downside costs to the economy of a financial crisis are far in excess of $80 billion. Most reasonable estimates are that we lost, in a tangible sense, at least one year’s worth of gross domestic product.

The Federal Reserve should establish a transparent set of benchmarks, published regularly, that measure the funding subsidies received by very large financial institutions. This would help drive out the nonsense put forward by Wall Street deniers.

The Fed staff has done something like this before in regard to federal subsidies to Fannie Mae and Freddie Mac – in a 2003 paper that calculated the financing advantage to be around 40 basis points, and in a 2004 speech by Alan Greenspan, then the Fed chairman.

Mr. Bernanke is promising that market perceptions will change and that the subsidies will fall. It hasn’t happened so far, nearly three years after Dodd-Frank. He should be held accountable, in public, for what happens to megabank subsidies going forward.