from Greenberg Center for Geoeconomic Studies

Bailouts or Bail-ins?

Responding to Financial Crises in Emerging Economies

Foreign policy analyses written by CFR fellows and published by the trade presses, academic presses, or the Council on Foreign Relations Press.

Roughly once a year, the managing director of the International Monetary Fund (IMF), the U.S. Treasury secretary, and, in some cases, the finance ministers of other G7 countries get a call from the finance minister of a large emerging-market economy. The emerging-market finance minister indicates that the country is rapidly running out of foreign reserves, that it has lost access to international capital markets, and perhaps that it has lost the confidence of its own citizens. Without a rescue loan, it will be forced to devalue its currency and default either on its government debt or on loans to the country's banks that the government has guaranteed.

How should IMF and G7 policymakers respond to financial crises? There are no simple answers. Countries experience currency crises, banking crises, corporate crises, and sovereign debt crises in various combinations. They can run out of cash despite having modest debts, or can run out of cash in large measure because they already have too much debt.

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Economic Crises

Financial Markets

In Bailouts or Bail-Ins, New York University's Nouriel Roubini and former Council International Affairs Fellow Brad Setser argue that the tools needed to respond to a wide range of crises already exist, and the core challenge facing the G7 and the IMF is to do a better job of matching existing tools to different types of crises. There is no need to dramatically expand the IMF right now, nor to create a sovereign bankruptcy regime. But there is a need to develop a rigorous, hard-headed approach to managing crises.

A Council on Foreign Relations Book

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Economic Crises

Financial Markets

Reviews and Endorsements

. . . by far the best book written in recent years on the vexing subject of how the international community should address international financial crises of emerging-market economies.

Jeffrey D. Sachs, Director of the Earth Institute, Columbia University

Roubini and Setser bring valuable experience from the policy-making process to their analysis of responding to twenty-first century financial crises in emerging economies. Bailouts or Bail-ins? will prove to be a useful tool for those confronting these crises, and a clear, accessible overview for those studying global markets.

Lawrence Summers, President, Harvard University; former Secretary of the Treasury

This is the most intelligent and comprehensive analysis yet of how the international community should respond to financial crises. Its analyses of the theoretical literature on the causes of crises, the evolution of official doctrine, and recent experience with crisis management are especially strong. It will be the definitive work on this subject for some time to come.

Barry Eichengreen, George C. Pardee and Helen N. Pardee Professor of Economics and Political Science, University of California, Berkeley

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