Bailout / Bail-in
External rescue vs. internal creditor-funded recapitalization for a distressed bank.
Detailed Description
Bailout / Bail-in
What is a bailout?
A bailout is financial support provided by the government to a failing institution to prevent its collapse.
How does a bail-in differ from a bailout?
A bail-in uses a financial institution's own resources to stabilize itself, while a bailout relies on external funding.
What are the implications of bailouts for financial institutions?
Bailouts can lead to moral hazard, encouraging institutions to take excessive risks, knowing they might be rescued.
What regulatory frameworks govern bailouts and bail-ins?
Regulatory frameworks like Basel III and the EU's Bank Recovery and Resolution Directive outline protocols for managing failing banks.
What are the pros and cons of bail-ins?
Bail-ins promote accountability and protect taxpayers, but they can create uncertainty among creditors and investors.