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the Bank Recovery and Resolution Directive

One of the main unresolved issues in financial regulation is how to deal with global banks that are too big to fail. The collapse of Lehman Brothers demonstrated the immense costs of the failure of such an institution, with devastating repercussions for the financial system and the broader economy. Yet bailouts and public guarantees that would prevent such failures also involve costs, creating moral hazard and incentives for financial institutions to grow ever larger and more complex. The proposed solution to this dilemma is bank resolution. Both Title II of the Dodd-Frank Act in the United States and the Bank Recovery and Resolution Directive (BRRD) in the European Union call for novel but, as of yet, untested resolution mechanisms for global systemically important banks (G-SIBs). These proposals aim to end too big to fail by providing a credible way to resolve and recapitalize failing G-SIBs with minimal disruption and without taxpayer support.1