Another important element of financial regulation is that the owners, if not also the managers, of insolvent institutions should suffer significant losses in the event of insolvency.
In emerging-market countries (and sometimes in advanced countries, a prominent example of which is Japan during the 1990s), governments have often provided insolvent institutions with funds to keep them from failing and left the existing owners and managers in charge. ailing out the owners and managers in this way worsens the moral hazard problem.