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.
Yet the debate around resolution proposals has highlighted the challenge of crafting a workable resolution regime for large, interconnected firms. The basic design problem is that such a regime must advance the goals of both financial stability and market discipline.