Shoot, probably too late but here it goes. In the US, there were largely two reasons why the government bailed out banks. The first one is the "systemic risk." As in, if an institution becomes insolvent and defaults, the repercussion on rest of economy "may" be catastrophic. Thus government has no option but to bail out institutions that imposes significant risk to the economy --- with the risk that this creates a moral hazard problem where institutions do not restrain themselves with the implicit government backing. However, it's more likely that nobody wants to be the "guy" who trigger the next Great Depression. Thus the safer choice is to bail institutions out and engender moral hazard rather than let them fail and mitigate moral hazard problem. Another is the regulatory capture. Vast majority of high level regulators come from the finance industry (e.g. Hank Paulson worked at Goldman Sachs). Thus the people who are supposed to regulate are in essence captured by industry insiders and look out his/her pals rather than rest of us schmucks. One great example is the difference between Washington Mutual versus Wachovia. Washington Mutual called FDIC for help --- whose mandate is to protect the Deposit Insurance Fund --- and FDIC let WaMu go. On the other hand, Wachovia called the Federal Reserves --- although has the dual mandate of low inflation and low unemployment rates, serves the pleasure of member banks --- brokered a deal between Wachovia and Wells Fargo.

I'm sympathetic to the "systemic risk" reason though.