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Since beginning of the 2008 financial crisis almost half a trillion euroshave been spent to financially assist EU member states in taxpayer-fundedbail-outs. These crisis resolutions are often accompanied by austerity programscausing political and social friction on both domestic and internationallevels. The question of how to resolve failing financial institutions underwhich economic preconditions is therefore a pressing and controversial issue ofvast political importance. In this work we employ an agent-based model to studythe economic and financial ramifications of three highly relevant crisisresolution mechanisms. To establish the validity of the model we show that itreproduces a series of key stylized facts if the financial and real economy.The distressed institution can either be closed via a purchase & assumptiontransaction, it can be bailed-out using taxpayer money, or it may be bailed-inin a debt-to-equity conversion. We find that for an economy characterized bylow unemployment and high productivity the optimal crisis resolution withrespect to financial stability and economic productivity is to close thedistressed institution. For economies in recession with high unemployment thebail-in tool provides the most efficient crisis resolution mechanism. Under nocircumstances do taxpayer-funded bail-out schemes outperform bail-ins withprivate sector involvement.

To bail-out or to bail-in? Answers from an agent-based model