Importance Financial crisis of 2008 clearly showed the weakness of the banking system of many countries to withstand shocks, and the ineffectiveness of existing mechanisms of regulation and control over financial institutions. The need for efficient public bailout policy for weak banks to counter the development of negative system effects and to mitigate the regulator's transaction costs became obvious. Objectives The subject of the research is a set of objective and behavioral factors that determine the probability of a bank failure and its consequences for the banking system as a whole. The research aims to develop a bailout policy for weak banks salvation, which to a maximum degree will promote a reduction in the ex ante moral hazard on behalf of the program recipient banks; a reduction in the regulator's transaction costs connected with control over financial institutions; a reduction in the number of "unrecorded" system-relevant institutions that remain without the State support. Methods We have proposed a rescue policy option using the theory of contracts methodology. The liquidity measures, together with the measures to control the "problem areas" of the banking system applied by the regulator, stimulate moral hazard of banks, which may result in financial difficulties at the microlevel, system instability and increased public debt at the macrolevel. In addition, the imperfect system of selecting banks for participation in the financial assistance program, which is focused to a greater extent on gross quantitative indicators, does not take into account financial productivity and networking aspects. Results We have proposed a mechanism of implementing a bailout policy, which helps to reduce the probability of moral hazard of banks participating in the program and regulator's transaction costs. Conclusions and Relevance The bailout policy mechanism also implies a reduction in the share of non-recorded system-relevant financial institutions. The research findings may be of interest to monetary authorities.
Keywords: bailout policy, systemically important banks, reserve requirements, deposit insurance system, moral hazard, opportunistic behavior
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