New regulatory design ensures market discipline with credible losers.
The article "Credible Losers: A Regulatory Design for Prudential Market Discipline" discusses a new way to regulate financial markets. The researchers suggest a system where failing companies are allowed to fail, which would make other companies more careful with their risks. This approach is called "prudential market discipline." The key finding is that this system could help prevent financial crises by making companies more accountable for their actions.