Bank bailouts have been controversial from the outset, with some commentators saying that they reward banks for making risky loans. This column investigates the idea of an asset buyback in which a special purpose vehicle buys bad loans from banks' balance sheets. It argues that these buybacks could be structured to avoid windfall gains.

How do financial crises alter the effects of employment protection legislation? This column argues that firms with insufficient access to credit are even less able to rationalise their costs by switching from labour to capital – reinforcing the negative effects on productivity. But policymakers should also consider that, in countries with less-developed financial markets, employment protection provides insurance against labour-market risk.

There are calls to establish a separate resolution fund to deal with future financial crises. This column says such a fund is not desirable. It likely would be procyclical, counterproductive, and give a false sense of safety. Rather, governments should levy Pigouvian taxes on the financial system to address negative externalities.

The structure of contracts in financial markets is deeply rooted in history. This column retraces the origins of financial contracting and explains why mutual fund banking proposals are wrong headed. It proposes to shift more of the functions of our current banking system away from limited liability back into partnerships. This would involve requiring hedge funds to be entirely separated from banks.

Will the economic recovery be U-, V-, W-, or L-shaped? This column warns that recoveries from recessions caused by financial crises are slower than others, due to stressed credit conditions that persist even after output begins to recover. It thus recommends policies aimed at recapitalising financial institutions, resolving distressed financial assets, ensuring adequate provision of liquidity, and expediting bankruptcy proceedings.