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Ms. G. G. Garcia

not “incentive-compatible” for all of the parties that are directly or even indirectly affected by the DIS contract; that is, it fails to provide incentives that induce all economic agents affected by the DIS to keep the financial system sound. While it is possible for an incentive-incompatible system to perform its responsibilities and remain solvent, it will need to rely more heavily on a formal system of regulation and supervision than it would in a DIS that embodies a good incentive structure. Moreover, an ill-conceived DIS impedes necessary regulation and