The strategies of financial stabilization embodied in the Dodd-Frank Act and Basel III ignore the efficiency and distributional issues raised by back-door bailouts. Neglecting the role of influence-driven incentive conflict in macroeconomic and financial stabilization helps regulators to avoid...

Official definitions of systemic risk leave out the role of government officials in generating it. Policymakers' support of creative forms of risk-taking and their proclivity for absorbing losses in crisis situations encourage opportunistic firms to foster and exploit incentive conflicts within...