A Bail-In is the opposite of a bailout, which involves the rescue of a financial institution by external parties, typically governments, using taxpayers’ money for funding. Bailouts help to prevent creditors from taking on losses while bail-ins mandate creditors to take losses.When a financial institution is bailed out, its debt is reduced and its equity increased. In contrast, when a financial institution undergoes a bail-in, its debt remains unchanged but some or all of its equity may be wiped out. This means that in order for the financial institution to survive it must either find new investors or raise fresh capital from existing ones.Bail-ins are seen as preferable to bailouts because they do not involve taxpayers’ money being used unnecessarily and they also send an important message about responsible lending and borrowing behaviour.
