Rescue assistance or commonly known as Bailout which in economic and financial terms is used to describe a situation where an entity that is bankrupt or near bankrupt, such as a company or a bank is given a liquid injection of fresh funds , in order to fulfill its short-term obligations. Often the bailout is carried out by the government or a consortium of several investors who will ask for the control role of the entity as reciprocity for the funds injected.
When should rescue be done?
When a bank or government institution is unable to fulfill its obligations to depositors or because it cannot pay or fulfill other funds that are still part of its obligations. Stopping bank operations that fail have two alternatives, the first can be liquidated without being included in the guarantee scheme. Second, if the bank or institution that fails is the insured, the government or investors who are under guarantee of payment based on guarantees by the agency or guarantor body such as the government.
Why Should Bank or Institutional Failure Be Prevented?
Prevention of banks or institutions must be done continuously in order to continue to maintain public confidence so as not to go down or even disappear. Efforts to safeguard from fraud in the financial or banking industry can be done in three efforts which must support each other, namely the existence of risk management, good governance and market regulation discipline . The implementation of risk management and good governance can help banks ensure that the direction and strategy are in accordance with and planned for. This can prevent bank managers from taking action that exceeds the degree of risk outlined.