benefit from the bailout or other policies. This leads banks to adopt a particularly fragile capital structure, so that they all fail together. Connection to exchange rate regimes An important aspect of financial fragility of the international system is the connection to exchange rate regimes. Barry Eichengreen and Ricardo Hausmann describe three views on the connection between exchange rate regimes and financial fragility. One view relates to the moral hazard created by the belief of market participants that governments will provide bailouts in the event of a crisis. A pegged exchange rate is a form of implicit guarantee, and leads market participants to expect such bailouts. A second view is that, due to lack of confidence in a country's currency, borrowers in that country seeking financing will not be able to borrow long-term, or borrow from international lenders at all, in that country's own currency. Yet often the returns of the borrower's project will be in the domestic currency. This is a source of financial fragility, because a drop in the exchange rate can cause a debt crisis, as debt denominated in foreign currency becomes much more expensive. A third view holds that the fundamental cause of international financial fragility is a lack of institutions to enforce contracts between parties. This lack of strong contracts makes lenders suspicious of borrowers, and can prompt a crisis should lenders begin to suspect that borrowers will not repay. Reducing financial fragility The natural financial fragility of banking systems is seen by many economists as an important justification for financial regulation designed to reduce financial fragility. Circuit breakers Some economists including Joseph Stiglitz have argued for the use of capital controls to act as circuit breakers to prevent crises from spreading from one country to another, a process called financial contagion. Under one proposed system, countries would be divided into groups that would have free capital flows among the group's members, but not between the groups. A system would be put in place such that in the event of a crisis, capital flows out of the affected countries could be cut off automatically in order to isolate the crisis. This system is partly modeled on electrical networks such as power grids, which are typically well-integrated in order to prevent shortages due to unusually high demand for electricity in one part of the network, but that have circuit breakers in place to prevent damage to