A bank bailout is a special act done for the purpose of bringing an entity such as an individual business or an organization or even a country from the brink of insolvency or bankruptcy. Such bailouts are falsely hyped to the public as the only solution where there is a call to enable the bankrupt entity to fall gracefully, without creating excessive chaos or enormous socioeconomic failures. For example, a bailout occurs when an investor takes over a floundering company for the purpose of social improvement and turns it around so that it becomes sound and eventually serves a better purpose.

This is just a small example, but a better understanding of bank bailouts can be understood by checking out global examples. One such example is the establishment of the Resolution Trust Corporation (RTC) which was setup in 1989 in response to the widespread bank insolvency caused by the Savings and Loan crisis. Yet another example is that of the 2008 UK Bank Rescue Package for about £500 billion. This package, implemented by the British Government on October 2008 aimed to restore market confidence and also bring stability into the British banking system. In addition to this, it also aimed to offer a range of short-term loans and guarantees.

Another interesting example of a bank bailout is that of the Dubai World by Abu Dhabi. Yet another bailout situation was that of Bank of America so that I could absorb losses that were incurred when bought out Merrill Lynch.

In 2008 Irish banks suffered substantial share price falls due to a lack of liquidity in finance available to them on the international financial markets. Currently, solvency is being revealed as the most serious concern in the global financial crisis as doubtful loans to property developers, still undeclared in bad debt provisions, come into focus.

Bank bailouts can help a concern to successfully recover from a financial crisis and bring that entity into a scenario where a low of unnecessary economic fallout is prevented. However, with the increasingly reckless risks that many businesses take, there is a general warning on issue of bailouts. One of the primary concerns is big companies taking unnecessary risks and thereby bringing down their business standards. There is the possibility of ethical standards not being followed because of the presence of the bank bailout safety net. This is defined as moral hazard. The basic nature of a healthy and free market is that it must allow for business successes as much as it must make way for failures. If a bailout were to happen, this normalcy of situation is likely to occur and as a result a normal market situation will not prevail, but a created one, which can have a negative effect on growth.