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Evaluating the Sufficiency of Bank Capital Buffers
A government official argues that simply forcing banks to hold significantly more of their own funds as a buffer against losses is a complete solution to prevent taxpayer-funded bailouts. Analyze this argument. In your response, explain why a comprehensive framework for managing bank failures also requires a specific mechanism to formally assign losses to a bank's private investors and lenders if it does fail.
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Evaluating the Sufficiency of Bank Capital Buffers