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We believe banks should (not) fail?

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I promise to write up more of the Middle Eastern case studies and issues soon, but became distracted because next Monday I’m joining a debate in Ireland.

The debate is at the UCC Philosophical Society, one of the largest and oldest debating societies, and they came up with a wonderful motion: “this house believes that the banking system should have been allowed to fail.”

I said I could propose or oppose the motion, as I can see both sides of the argument and I haven’t prepared any thoughts yet, but said to one of my Bahrainian colleagues what was happening and he said, “no worries Chris, I have lots of good reasons why banks should be allowed to fail”.

As this came from a banker, it had me worried.

Then, in even more startling fashion, my friend appeared later that day with three sheets of neatly written paper arguing the case for letting the banks fail.

So, here are 20 reasons to let banks go under:

#1: To protect sovereign indebtedness – can governments truly afford to prop up the banking systems with their promises?

#2: It’s better to jail bankers than politicians, so let them fail and hang the bankers responsible.

#3: By letting banks fail, at least you can apportion blame and punish those responsible.

#4: Let the banks fail that should fail, and the markets will return to normality sooner rather than later

#5: Let the banks fail, as the taxpayer will not be held responsible at least.

#6: The industry has to restructure anyway so, by letting the banks fail, this can happen sooner rather than later.

#7: If banking is meant to be free trade with principles based regulation, then this can draw a line to say that model is broken. The banks don’t work and the state should not take a strong arm in systems that are meant to be ‘free’.

#8: If the USA can let Lehmans fail, why should we prop up our ailing banks?

#9: Let banks fail because it will accelerate reform in the industry.

#10: Bonuses, compensation culture, infectious greed ... let banks fail as it will define the limits of moral hazard in these markets.

#11: Let banks fail as it will allow investors to pick up the best parts of banks that were working whilst letting the bad parts rot with government.

#12: Let banks fail ... who would vote for a national ‘bad bank’ to be created at the taxpayers’ expense?

#13: We need a national review of bank culture, rewards and practices and this would allow pone to take place.

#14: By letting banks fail, the government guarantees could be revoked and the size of the issue made known.

#15: The market needs new models for lending and this would allow the markets to create them.

#16: It would get rid of this idea that banks can do what they want and the state will protect them.

#17: Let our banks fail as it will allow the State to adopt international standards and best practices.

#18: If you let the banks fail, the government cannot be charge with cronyism (giving jobs to their banking friends).

#19: Let the banks fail and the government undermines any opposition form other parties as they can show they did the ‘right thing’.

#20: Let banks fail as the system is so corrupt that it would create a new world order and, hopefully, a better one.

Well there are 20 good reasons to let banks fail, and they all came from a banker!

I’d be interested in ideas, reactions and input to this debate, particularly as it will help to shape my arguments for Monday. 

I also promise to let you know how the vote went and my final pitch.

Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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