Keep in mind, Greece is not being bailed out. Greece's bondholders are being bailed out. Greece would rather default. Cleared of its debts, it would likely be able to borrow again soon.
One would think that wise regulators would have required hefty capital against sovereign lending, or lending to other banks whose main investments are Greek debt. One would think that given a full year, those regulators would have at least increased the capital requirements for sovereign debt, run serious stress tests against sovereign default, or forced banks to buy credit-default swap insurance from counterparties other than Greek banks. But one would be wrong. (This is a sobering lesson for the U.S.'s plan under Dodd-Frank to trust that our wise regulators will spot all dangers, require adequate capital, and keep banks from getting into trouble.)
Third, the European Central Bank (ECB) is now involved as well. It started buying secondary-market Greek debt last May. The ECB has now lent in excess of 80 billion euros to Greek banks, replacing private funding that has run away, and typically receiving Greek government debt as collateral.
Under Basel II in December 2009, Greek government bonds, rated A-/A2, had the same 20 percent risk weight as AA/AAA asset-backed securities in the United States. It seemed like easy money, and banks levered it up. As usual, regulations did not alleviate the problem, rather, they encouraged it.