Abstract: This paper develops a model of bankruptcy, credit, and banking to analyze the impact of large banks' bankruptcies and to assess the effectiveness of various intervention policies. The model shows that a large bank's collapse can trigger systemic liquidity shortages by forcing the sale of significant asset holdings, which in turn reduces collateral values across the financial system. This decline in collateral value intensifies credit contraction, worsening liquidity shortages in the market. The paper evaluates two intervention policies to address these issues: government bailouts and asset purchase programs. While both policies help alleviate liquidity shortages and stabilize asset markets, the analysis finds that bailouts offer an advantage in reducing public costs.