Financial regulation should be countercyclical, strengthening during speculative booms to contain excessive leverage … and loosening following crises so as to not limit credit extension in hard times. And yet, financial regulation in fact … choice perspective on financial regulation, i.e. rational choice ideas drawn from economics and applied to politics, but with …

government guarantees rather than from corporate governance failures within banks. The idea of the proposed regulation is to … shareholder risk-shifting incentives. The decisive advantage of this approach compared to existing regulation is that the …

shareholder, or both. Our characterization of optimal regulation in the presence of an agency conflict demonstrates several key … results. First, optimal regulation can take two forms. In one regulatory strategy fines are imposed on shareholders and they … firing” strategy that imposes a fine on the manager becomes more attractive. And third, we find that regulation costs are …