We find that expectations of state support are embedded in credit spreads on bonds issued by large U.S. financial institutions. While credit spreads are sensitive to risk for most financial institutions, credit spreads lack risk sensitivity for the largest financial institutions. Debt holders of major financial institutions have an expectation that the government will shield them from losses and, as a result, they do not accurately price risk. This expectation of public support constitutes a subsidy to large financial institutions, lowering their funding costs. We find that the implicit subsidy provided large banks an annual funding cost advantage of approximately 16 basis points before the financial crisis (from 1990-2007), increasing to 88 basis points during the crisis (2008-2010), peaking at more than 100 basis points in 2008. The total value of the subsidy amounted to about $4 billion per year before the crisis, increasing to $60 billion during the crisis, topping $84 billion in 2008. Passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July of 2010 did not eliminate investors’ expectations of government support. Implicit state insurance represents a significant wealth transfer from taxpayers to major financial institutions. The cost of this implicit insurance could be internalized by imposing a corrective insurance premium, thereby restoring bondholders’ incentive to monitor banks and creating a more stable and efficient financial system