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Ikb The Unnecessary Bailout

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by Felix Salmon
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Feb 14 2008 12:00am EDT

IKB: The Unnecessary Bailout

Why is the German government bailing out IKB? It's small, it's not systemically important (although it is politically important, which is probably the key here), and there's all sorts of moral hazard involved in keeping this insolvent bank afloat. Willem Buiter is scathing about the decision, calling it downright illegal.

But Sam Jones notes that if IKB was allowed to fail, that would trigger a guarantee mechanism which would cost German banks €24bn. Maybe the IKB bailout isn't an IKB bailout at all, but rather a bailout of the rest of the German financial system.

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