bailout

A bailout is a financial rescue aimed at preventing a business, financial institution, or economy from failing, or from experiencing severe disruption. It usually involves public funds or guarantees, and may take the form of loans, loan guarantees, purchases of troubled assets, or direct equity injections. It can also involve guarantees on liabilities to restore liquidity. It differs from liquidation or bankruptcy, which aims to wind down the entity.

Bailouts are typically undertaken in situations of systemic risk, where a failure could spread to other institutions or sectors, threaten employment, or undermine financial stability. They are often negotiated with conditions requiring reforms, governance changes, asset sales, debt restructuring, or improved risk controls. The parties providing support may include governments, central banks, and international organizations.

Notable instances include financial crises where governments intervened to stabilize banks and large corporations; government and central bank support during crises; sovereign bailouts of countries like Greece; and sector-specific relief during the COVID-19 pandemic for airlines and small businesses. Private-sector bailouts, where creditors or firms themselves finance a rescue, are also common, sometimes with public guarantees.

Bailouts are controversial. Critics argue they create moral hazard by shielding risky behavior from consequences and imposing costs on taxpayers. Supporters contend that timely rescue preserves jobs, protects critical infrastructure, and prevents broader economic collapse. Debates often focus on appropriate conditions, exit strategies, and whether bailouts should be paired with bailout terms like bail-in mechanisms.