A government policy aimed at systematically bailing out firms in the presence of negative idiosyncratic shocks facilitates 'tacit' co-ordination between banks, according to a new Sveriges Riksbank working paper.

In Systematic bailout guarantees and tacit co-ordination, Christoph Bertsch, Claudio Calcagno and Mark Le Quement argue that a "systematic bailout regime increases the expected profits from coordination and simultaneously raises the probability that competitors will remain in business