A fourth key element of the post-crisis regulatory regime is to develop credible options for resolution so that even one of the largest financial firms could be allowed to fail without bringing the financial system down. Without such options, market discipline will remain lacking.
Moral hazard will lurk in the background, since market actors will doubt that a large institution would be allowed to fail. Moreover, government officials must themselves have confidence in the viability of orderly resolution and bankruptcy procedures, or else during periods of high stress, they will be tempted to use some form of government help to keep the firm solvent.