open economy requests a bailout from an international financial institution, it receives a non-defaultable loan of size G … that comes with imposed debt limits. The government endogenously asks for the bailout during recessions and repays it when … the economy recovers. Hence, the bailout acts as an imperfect state contingent asset that makes the economy better off …

We study public funding of banks and non-financial firms in a time of crisis. We find that bank capitalization is more …

of bank failure is sufficiently large, the surplus as well. Our results in overall highlight the need to take into …

surplus when the social cost of bank failure c is large. When c is small and the banksíasset risk taking is not too sensitive …