Bailouts may additionally distort funds allocation to the extent that they may be distributed partially according to the banks' political and regulatory connections. Bailouts of some banks and not others could create distortions in bank competition as well. Bailouts may also impose costs on taxpayers that may not be adequately compensated for the risks taken. They may create long-run moral hazard incentives for banks to take on excessive risks because bailouts may raise expectations of future bailouts that may weaken market discipline.

However, bailouts also come with social costs. As discussed in later chapters, bailouts are also generally found to increase credit supply and improve economic conditions by increasing employment and reducing firm and consumer bankruptcies. Bailouts help avoid or mitigate short-term financial system problems, increase stability, reduce systemic risk, and reduce the likelihood and severity of recessions which are often the consequences of banks' financial distress and failures. Roman, in TARP and other Bank Bailouts and Bail-ins around the World, 2020 1.1.2 Consequences of bailoutsīailouts are often very attractive to government officials because they can usually be put together relatively quickly and do not require the advance cooperation of private-sector agents that bail-ins often do.

Big business bailout