  Widespread default involves substantial deadweight costs which could be
countered by injecting capital into failing firms. Injections have positive
spillovers that can trigger a repayment cascade. But which firms should a
regulator bailout so as to minimize the total injection of capital while
ensuring solvency of all firms? While the problem is, in general, NP-hard, for
a wide range of networks that arise from a stochastic block model, we show that
the optimal bailout can be implemented by a simple policy that targets firms
based on their characteristics and position in the network. Specific examples
of the setting include core-periphery networks.
