We all know that a bail-out is when outside investors (say taxpayers) rescue a borrower by injecting money to help service a debt. Bail-outs of failing banks in Greece, Portugal and Iceland were primarily financed by taxpayers.
But now, bailouts are not enough. While hiding behind untrue declarations of a desire to avoid 2008-style taxpayer bailouts, they plan, as the present crisis (2017) hits full-force, to simply seize the private bank deposits of ordinary citizens like yourself—“bail-in”, as opposed to “bail-out”.
So bail-ins, are a more severe version of a bail-out where banks empty a customer's bank accounts to pay off their debts. It's been used in Cyprus, Greece and it appears that governments and banks around the world are planning for mass bank bail-ins.
In the case of Cyprus, the creditors in question were bondholders, and depositors with more than €100,000 in their accounts. At the height of the financial crisis, governments avoided resorting to bail-ins out of concern that it might cause panic among the creditors of other banks; even the bondholders of Irish banks were initially spared. But as time has passed, and the cost of government bail-outs has risen, the appeal of asking private-sector investors to take a hit has increased. Ironically, it was one such bail-in—the restructuring of Greek government debt—that led to the problems faced by the Cypriot banks, which were big holders of Greek bonds.
The rationale for a bail-in goes like this...
When a bank fails because its assets (such as mortgage loans) are not enough to cover its liabilities, rather than it being declared bankrupt or bailed out with taxpayer money, said bank will be kept open for business by the intervention of a government-appointed bail-in authority, which takes over the bank and acts to reduce its liabilities. The authority will write down (cancel) some of the value of the bank’s debt. Creditors, such as holders of the bank’s bonds, may have those bonds converted into equity (shares) in the bank. Not only bondholders, but also depositors are classified as “unsecured creditors”. Thus, to reduce the bank’s liabilities the bail-in authority can vaporise the savings of its customers and assets of its bondholders, compensating them with worthless shares in the “resolved” institution.
https://www.cecaust.com.au/bail-in/2016_03_22_bail-in.html
http://www.economist.com/blogs/economist-explains/2013/04/economist-explains-2