Cap Creditors' Bailouts?

What is the harm sought to be prevented by this proposal? Excessive interbank lending? And how does a single university professor know that 50% is the proper number to produce the optimal amount of interbank lending? Could it be 60% or 40%?

The harm sought to be prevented is the harm done to incentives for risk taking and prudence in financial markets caused by the implicit promise, now made more explicit, of bailouts for well connected firms.
Roberts says the optimal is a zero bailout promise but in a world where that is not a credible promise, can we please try something like half.
Roberts never claims to know the optimal amount of interbank lending, but he does know, and I think he is right, that if creditors are banking on a govt bailout to cover their downside risks, we are pretty far away from anything that can be called optimal.

[Comment edited to remove crude acronymn.--Econlib Ed.]

I don't have access to the article, not being an academic. In any case, there is no need to swear at me.

[wm13: The crude language has been removed. Though it wasn't directed at you personally, it was inappropriate. We apologize for the problem.--Econlib Ed.]

You can sign in as a guest, that's what I did

and I was only kinda swearing, kinda using the standard internets lingo

This would be a pretty pragmatic step (in a legislative sense) in reversing the moral hazard caused by implicit protection, as well as GSE's.

Politically, the powerful financial firms still get some level of risk buffering from Uncle Sam, but the pitchfork wielding mainstreeters are somewhat appeased. That isn't to say there wouldn't be lobbying against this, but that lobbying wouldn't have much ground to stand on.

To wm13 - you can get Russ' article. I registered under the "University of Continuing Education". It has a faculty of one - me.