Financial intermediaries often provide guarantees that resemble out-of-the-money put options, exposing them to tail risk. Using the U.S. life insurance industry as a laboratory, we present a model in which variable annuity (VA) guarantees and associated hedging operate within the regulatory...

We analyze the design of bailout regimes when investment is distorted by a toomany-to-fail problem. The first-best allocation equalizes benefits from more banks investing in high-return projects with endogenously higher systemic risk due to more banks failing simultaneously. A standard bailout...