The empty creditor hypothesis suggests that bondholders and other creditors can use credit derivatives and other financial contracts to unbundle exposure to default from non-economic rights such as voting under debt agreements and in bankruptcy. According to the hypothesis, hedged creditors have...

Deposit insurance, while reducing the threat of bank runs, also lessens bankers' incentives to control risks. Reforms of the deposit insurance system are necessary to discourage excessive risk taking such as characterized the recent S&L crisis. The adoption of market value accounting, early...