We start by establishing a safety net for banks, including deposit insurance, access to a lender of last resort, and payment system guarantees. This immediately reduces the incentives of market participants to monitor the risk-taking of banks and, in turn, encourages excessive risk-taking by banks.
We BIS Review 87/1998  -2-  then put in place a regulatory and supervisory framework to counter these moral hazard incentives. And, when we are done, we complain about the absence of market discipline. I appreciate that this sounds just a bit contradictory.