Introduction: Why “Too Big to Fail” Matters
Picture this: it’s 2008, and the financial world is collapsing. Lehman Brothers has just filed for bankruptcy, stock markets are in freefall, and governments are scrambling to save the banking system from implosion. Overnight, trillions of taxpayer dollars are poured into bailouts.
For bankers, it was survival. For ordinary people, it was devastation: jobs lost, homes repossessed, pensions gutted. Families who had never set foot on Wall Street suddenly paid the price for risks they never agreed to take.
The phrase that dominated headlines at the time still haunts us today: too big to fail. And here’s the unsettling question at the heart of it all:
How could such massive, systemic risks have been overlooked for so long?
More Than an Economic Crisis
Most explanations of the financial crisis talk about mortgage bubbles, reckless bankers, or weak regulations. But there’s a bigger, deeper story here: the ethics of risk.
When a bank is too big to fail, its choices don’t just affect its shareholders. They affect all of us. A reckless bet in a trading room in New York or London can ripple outward to factory workers in Detroit, families in Madrid, or students in Athens.
Suddenly, what looked like abstract financial maneuvers turn into very real human costs: lost jobs, hunger, homelessness.
So the question isn’t just how banks operate—but whether it is morally acceptable for private institutions to endanger entire societies.
The Big Questions
This blog series explores three simple but profound questions:
- Why is the banking system so fragile—and is fragility inevitable, or the result of how we organize money and credit?
- Can too-big-to-fail banks ever be justified from the standpoint of risk ethics, when private risks are shifted onto the public?
- How can we reimagine finance to serve the public good—creating a system that is effective, resilient, and just?
A New Lens: Ethics Meets Economics
Instead of treating finance as a world of charts and jargon, „Risk Ethics of Banks" bridges two disciplines: economics and ethics.
On the economic side, it unpacks the mechanics: the history of too big to fail, the growth of systemically important banks, and theories of financial instability (including Hyman Minsky’s seminal work).
On the ethical side, I use risk ethics—a framework that asks who carries the risks, and whether that distribution is fair. Drawing on Alan Gewirth and Klaus Steigleder, I outline criteria for when shifting risks is morally legitimate—and when it crosses into exploitation.
What This Series Will Do
This blog series will guide you chapter by chapter through the book.
The first half looks at economics:
- How too big to fail banks became so powerful.
- How the conversation about risk changed before and after 2008.
- How regulators decide which banks are “systemically important.”
- Why credit bubbles and instability are baked into the system.
The second half dives into ethics:
- What a rights-based approach to risk tells us about banking.
- A case study of Lehman Brothers through the lens of risk ethics.
- Concrete reforms that could make the system fairer—and safer.
Why It Still Matters
Fifteen years later, the lesson hasn’t sunk in. Banks are bigger than ever. The system is still fragile. And if another crisis comes, the costs will once again land on ordinary people.
Understanding the ethical stakes of too big to fail isn’t just an academic exercise—it is essential if we want to prevent the next crisis from playing out the same way.
In the next post, we’ll step back and ask: How did banks get so big in the first place—and why did regulators let it happen?
Stay tuned.
This article series presents the main ideas of my book in digestible form. For a complete and detailed treatment, see Risikoethik der Banken (The Risk Ethics of Banks), published by Mohr Siebeck and freely available in Open Access. Feel free to use it in teaching, seminars, and academic discussions.
