Do authorities have to rescue banks in trouble?

Since the announcement of Northern Rock' crisis, the bank of England has already lend huge and impressive amounts to help this bank to survive. Was is a good idea for financial authorities to intervene in such a situation?

In short-run, a helpful policy enables financial authorities to avoid a crisis by rescuing banks in trouble. It helps bank's customers, who might have lost all their savings and also helps bank's employees, who may lose their job and thus increase unemployment rate.
Furthermore this policy avoids a domino effect, which could have drastic consequences on the financial community as a whole. Central banks may also intervene for personal reasons...pride and honor instead of rational and realistic judgment!

Fortunately authorities refuse to rescue banks sometimes. For example it happened in the UK, when Barings collapsed. Barings Bank was the oldest merchant banking company in London until its collapse in 1995 after one of the bank's trader lost $1.4 billion in speculation.

Let us move on to the reasons not to help. If a company has a harmful management, why should authorities help it? By rescuing such banks, authorities may appear weak and thus may encourage careless management.
Moreover by lending money to banks in trouble, central banks risk losing even more money in the future. Here is a big dilemma...a helpful policy may avoid the crisis in the short-run, whereas it might create a bigger one in the future. Financial authorities have to be credible. Thus banks would be aware of risks and that is crucial!