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Like all corporations, financial intermediaries' are subject to a complex
system of legal regulation. Much of the regulation of ordinary
industrial corporations is directed at ensuring full disclosure of
relevant information to investors. Stockholders and other investors
may then choose whether to take certain risks. By contrast, the regulation
of financial intermediaries also limits the risks associated with
the investment itself. Some regulation is aimed at ensuring that the
intermediaries are "sound," i.e., not in danger of failure because of
illiquidity or insolvency. Other legal techniques are designed to cope
with failure and other unsound conditions when they do occur. The
purpose of this article is to examine the major legal strategies for
regulating the riskiness of financial intermediaries. Part I introduces
the agencies involved in the regulation of financial intermediaries.
Part II discusses the reasons for having any governmental regulation
of the risk levels at which financial intermediaries operate. Part III
classifies the four principal strategies employed by the law to deal with
the liquidity and solvency of financial intermediaries, and attempts to
determine the general virtues and drawbacks that inhere in each of
these strategies. No effort is made to assess all the particular rules and
alternatives that are possible within a single strategy. This article deliberately takes a highly general approach in the belief that useful insights can be facilitated by a comprehensive vantage point.

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regulatory agencies, risk