Abstract

Aiming at reducing both the financial burden borne by taxpayers and moral hazard phenomenon, the bail in mechanism provides for shareholders and unsecured creditors to face the cost of failing banks. However, the responsibility for excessive risk-taking mostly lies with banks' executives and management. Therefore, punishing creditors who are generally unaware of such behavior does not seem to constitute an adequate deterrent. On the contrary, government intervention is more effective and less burdensome since it avoids any contagion effects and protects banks' credibility and reputation, thus facilitating their recovery.