Banks were recapitalised by the government to meet prudential norms through recapitalisation bonds. The mechanism of hiving off bad loans to a separate government asset management company was not considered appropriate in view of the moral hazard. The overhang of non-performing loans had to be managed by the banks themselves.
The second measure taken was a comprehensive guarantee of financial institutions' debts. During financial system instability, the concern of depositors and investors tends to intensify exponentially once it passes a tipping point. Leaving such a situation unresolved could  2  BIS Review 132/2008  amplify their concern and thus lead to uncontrollable turmoil.