And market signals will be of less use if, as may be the case, some forms of risk are almost exclusively systemic, in the sense that the risk will turn into loss only in a systemic crisis. But surely, even with these qualifications, the regulatory system has much to gain from increasing market discipline in financial markets. Two possibilities have been most widely discussed.
First, as already noted, there is wide support for a resolution mechanism for large financial firms that would create a third alternative to the current, unsatisfactory options of bailout or possibly destructive disorderly bankruptcy. Both the reform bill passed by the House last year and the bill to be considered on the floor of the Senate contain variations on this basic proposal.