. Second, it estimates the magnitude of bailout costs depending on the size of banks, their ownership type, financial soundness …, and the type of bailout instrument used by the government. The latter aims to contrast the fiscal contingent liabilities … when the government uses bailout instruments without recourse on bank future profits-such as government purchases of bad …

This paper discusses optimal government bailout policy where the costs of systemic failures and moral hazard problems … are considered. We find that a three-tiered bailout policy that includes an ex post monitoring and bailout scheme for … institutions with large systemic impacts ('Too Big to Fail') is optimal. The optimal policy also requires a randomized bailout for …