Bailout
A bailout is when a government or central bank gives money to a failing company or bank to keep it from collapsing, usually because its failure would hurt the wider economy.
The 2008 Troubled Asset Relief Program (TARP) is the best-known US example. Critics argue bailouts create moral hazard by teaching firms that big risks will be covered.
In Journey Shares
If losses wipe out the game bank's capital it fails, calls in its loans and is bailed out at the start of the next weekly season, paid first from tax revenue. →
Related terms
- Moral hazard: Moral hazard is the tendency to take more risk when someone else bears the cost if things go wrong, such as a bank expecting a bailout or a driver who is fully insured.
- Bank run: A bank run happens when many depositors withdraw their money at once because they fear the bank will fail, which can make it fail even if it was sound.
- Capital requirements: Capital requirements are rules that make banks fund part of their lending with their own money (equity) so they can absorb losses without failing.
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