I have in the past suggested that to lessen the moral hazard of the safety net and to improve supervision and regulation, public policy should attempt to simulate, in so far as possible, what markets alone might do, or at least to create market-type incentives.
To do so would, of course, move us closer to the period of pre-safety-net incentives while avoiding, one hopes, the distortions of that regime. For example, solvent banks must remain assured that they will be able to liquefy their sound assets at times of liquidity distress, but ideally, we would otherwise like banks to be managed as if there were no safety net.