But the regime must also be able to contemplate failure by a very large bank--that is, to plan for the possibility that a larger bank may become insolvent notwithstanding much greater ex ante resiliency.
The regime must promote market discipline and offset the moral hazard that comes if a bank and its creditors believe the government will have no real choice but to bail the bank out. Much has been accomplished in the last six or seven years to build a regime that advances both these goals.