When the Next Bank Falls: The Ethics of Saving the Unsavable
After Credit Suisse: One Bank to Rule Them All
In March 2023, Credit Suisse – one of the world’s most established banks – teetered on the edge of collapse. Within a frantic weekend, Swiss regulators brokered an emergency takeover by rival UBS, propped up with over 200 billion francs in state guarantees.
The crisis was contained, but not resolved. Switzerland was left with a single megabank whose balance sheet now outweighs the country’s entire GDP. This event was not only a financial alarm but also a moral one.
When Risk Becomes a Moral Issue
In my open-access book chapter in Rights-Based Ethics: Foundations and Applications, titled “Too Big to Fail Banks, Private Credit Creation, and Systemic Risks: Challenges of a Modern Ethics of Risk,” I argue that too-big-to-fail banks are not only an economic problem but also a moral one. They threaten basic principles of justice and the fundamental rights of billions of people around the world.
Drawing lessons from the Great Financial Crisis of 2008, I show how modern banks create credit “out of thin air,” inflate property and asset bubbles, and leave societies to pay the price when the cycle collapses. The fallout – lost jobs, savings, and public trust – is not just economic damage. It’s aviolation of basic rights for people who never chose to bear those risks.
The Moral Test Banks Keep Failing
A rights-based ethical lens can be used to assess financial risk. For a serious risk imposition to be morally acceptable, it must meet three conditions:
- Functional: Risk exposures must be part of a functioning context of action that helps to protect people’s rights in the long term – even if certain rights are temporarily exposed to the risk of being violated. This functional condition must be fulfilled.
- Distributive: Risk exposure should not systematically discriminate against any social group or individual. After all, every person has the same rights.
- Procedural: Especially in situations where the second criterion cannot be met, it becomes even more crucial that those affected have the opportunity to either consent to or reject the risk imposition.
By these standards, too-big-to-fail banks fail across the board, meeting none of the three risk ethics criteria. They amplify financial fragility, shift losses onto taxpayers, and operate with little regard for democratic consent. In short, they are simply too big to justify.
Voice, Exit, and the Future of Finance
Rather than giving in to despair, the discussion turns to a framework inspired by Balaji Srinivasan’s concept of “Voice vs. Exit” – two fundamental responses to broken systems.
- Voice is the effort to reform from within: to speak up, demand accountability, and reshape institutions before they fail.
- Exit is the creation of alternatives outside the system when reform is no longer possible.
This dual lens offers a fresh perspective to address and navigate the too-big-to-fail problem in modern finance.
Voice: Reform from Within
Under this view, rebuilding trust and stability within the system requires bold, pragmatic reforms.
- Raise capital requirements to 20–30% equity, ensuring banks have real “skin in the game.”
- Impose capital surcharges on oversized institutions to curb excessive risk-taking.
- Simplify regulation so that resilience – not growth – is the primary goal.
- Establish an independent EU commission to re-evaluate how credit and money are created, drawing on reform models such as the Chicago Plan, Positive Money, and narrow banking.
These measures would strengthen market discipline while upholding the moral duty to protect citizens from systemic harm.
Exit: Study Bitcoin!
When reform from within fails, exit options become essential – building new systems that lessen our dependence on the old.
In this context, Bitcoin is not a panacea or a speculative asset, but an ethical experiment in decentralization and trustless exchange. Its creation directly responded to the structural failures exposed by the 2008 financial crisis – a moment when confidence in banks, governments, and centralized institutions collapsed. The release of Bitcoin’s white paper in 2008 and its launch in early 2009 were deeply symbolic, embodying a critique of the too-big-to-fail ethos that had come to define global finance. By proposing a peer-to-peer monetary network free from intermediaries, Bitcoin sought to reimagine financial sovereignty, shifting power from institutions to individuals through cryptographic proof rather than trust.
By inscribing the words “Chancellor on brink of second bailout for banks” into Bitcoin’s first block, its pseudonymous creator, Satoshi Nakamoto, issued both a warning and an invitation to reconsider the nature of money.
In this light, decentralization is more than a technical innovation – it is a moral critique of the hazard at the core of modern finance. Unlike centralized systems, decentralized structures lack a single point of failure or authority susceptible to capture. The lesson is not to idealize Bitcoin, but to study it – to understand what it signifies as an exit option.
Exploring such systems matters because they challenge the belief that trust must reside in institutions deemed “too big to fail.” Whether or not Bitcoin offers the ultimate solution, its very existence reminds us that alternatives are possible – and that ethical finance depends on keeping them alive.
A Moral Imperative for Modern Finance
More than fifteen years after Lehman’s collapse, the too-big-to-fail problem has only deepened. Banks are larger, debt levels higher, and public trust thinner. The message is clear: reforming finance is not only an economic task but a moral one. Only by reclaiming our voice within the system – and keeping exit options open beyond it – can we build a financial order worthy of public trust.
Read the full open-access chapter: