The current uses of resolution-based regulation to try to protect the stability of the financial system fall into three general categories, which can be described as “reactive,” “proactive” and “counteractive.” Reactive resolution-based regulation, the most common approach, applies once a systemically important firm becomes financially troubled. Proactive resolution-based regulation consists of preplanned enhancements that are designed, at a time when a systemically important firm’s default is merely a theoretical possibility, to take effect if the firm starts to become troubled (by then strengthening the firm’s ability to pay its debt or facilitating its resolvability). Counteractive resolution-based regulation is intended to reduce the need for resolution by preventing firms from becoming financially troubled in the first place. 

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CIGI Papers present in-depth analysis and discussion on governance-related subjects. They include policy papers that present CIGI experts' positions or contributions to policy debates, and background papers that contain research findings, insights and data that contribute to the development of policy positions.
  • Steven L. Schwarcz is a CIGI senior fellow and the Stanley A. Star Professor of Law & Business at Duke University. At CIGI, Steven leads research on systemic risk and financial regulation, corporate governance of systemically important firms, cross-border resolution measures and sovereign debt restructuring.