This article suggests some reforms of regulatory architecture for the treatment of distressed banks. Our main recommendations are: • a special bankruptcy regime for banks should be implemented ; • strong, truly independent supervisory agencies should be established ; • the incentives of...

In a dynamic model of asymmetric information between the owner of a firm and a manager, we investigate the optimal set of contingencies on which an incentive contract should depend when renegotiation is possible. In particular, we characterize the circumstances in which the contracting parties...