Incentive realignment can also be achieved by fostering more of the capital market discipline that has, as explained earlier, been limited. One example is a byproduct of measures to increase the total loss absorbency of systemically important financial firms by requiring minimum amounts of debt that could be converted to equity upon a firm’s insolvency.
As you may know, the Federal Reserve Board intends to issue a proposed rulemaking that would implement such a requirement at the largest financial firms.