A bailout is a financial assistance or rescue package the government or a financial institution provides to a company, organization, or country facing severe financial distress or insolvency. The goal is to prevent the entity receiving the aid from collapsing, as its failure could have widespread negative effects on the economy, financial system, or other related industries.

What You Need To Know

Bailouts can take different forms, such as loans, grants, guarantees, or equity investments. The funds provided are intended to stabilize the troubled entity, enable it to meet its financial obligations, and continue its operations.

Bailouts can be controversial because they often involve using taxpayer money to support struggling entities. Critics argue they can encourage reckless behavior by providing a safety net for companies that take excessive risks, known as moral hazard. On the other hand, proponents argue bailouts are necessary in certain situations to prevent systemic risks and maintain economic stability.

Examples of bailouts include government assistance to large financial institutions during the 2008 global financial crisis, financial support to industries affected by the COVID-19 pandemic, and international aid packages to countries facing severe economic crises.