A financial rescue mechanism in which a failing bank's creditors and depositors absorb losses by having a portion of their holdings written off or forcibly converted into equity, rather than relying on external taxpayer-funded bailouts. Bail-ins are designed to shift the cost of bank failures from governments to the institution's stakeholders, thereby reducing moral hazard. The approach gained prominence after the 2013 Cyprus banking crisis, where large depositors faced significant haircuts to recapitalize distressed banks.
Example
“During the bank's restructuring, uninsured depositors above the €100,000 threshold had 40% of their balances converted to equity in a bail-in procedure.”