Bailout

Bailouts may take the form of loans, guarantees, purchases of shares or assets, or direct cash injections. They are usually provided when the failure of the organisation would cause widespread damage to the economy, the financial system or society.

For example, during the 2008 financial crisis, governments in the United States, United Kingdom and other countries injected huge amounts of money into banks to prevent them from failing and to protect depositors and the wider financial system. Governments have also bailed out car manufacturers, airlines and countries facing debt crises.

Bailouts can prevent severe economic damage, protect jobs and maintain confidence. But they are often controversial. Taxpayers may bear the cost of rescuing private companies, and bailouts can create moral hazard by encouraging risky behaviour if companies expect to be rescued.

To reduce these problems, bailouts often come with conditions, such as limits on executive pay, requirements to repay the money with interest, or the government taking ownership stakes. Since 2008, many countries have introduced rules requiring failing banks' investors and creditors to bear losses first, an approach called a bail-in.