Too Big to Fail — The Credit Suisse Test —

I. The principle and its paradox

Too Big to Fail is not a legal principle. It has never been enacted as such in any constitution, no civil code contains it, no founding treaty consecrates it. It is a pragmatic fear — the fear that the collapse of a large enough entity would drag down, in its fall, a portion of the real economy inhabited by human beings who had nothing to do with the decisions that led to that collapse. And it is precisely because it is not a legal principle that it is so dangerous: it operates in the shadows of the law, suspending the law when the law becomes inconvenient.

The legal architecture governing commercial entities rests, in all major Western traditions, on a fundamental principle: the legal person is a fiction distinct from those who compose it. The company is not its shareholders. The bank is not its depositors. The holding is not its subsidiaries. This principle — articulated with surgical clarity by the House of Lords in Salomon v Salomon in 1897 — was designed to protect: it separates risks, it localises liability, it allows collective action without collective ruin. B exists so that A and C do not merge.

Too Big to Fail contradicts this architecture from end to end. When a state decides to save an entity on the grounds that its disappearance would be too costly, it implicitly writes what Salomon forbids: it makes C — the taxpayer, the citizen, the sovereign — bear the consequences of decisions made by A, crossing B as if it did not exist. The fiction is preserved, but the principle that justified it is erased. One invokes Salomon when B is profitable. One suspends Salomon when B fails. Two measures, one single legal fact.

II. Credit Suisse 2023: the 72-hour test

The Credit Suisse case is not another Lehman Brothers. It is more instructive, because it is more recent, more deliberate, and more revealing of the structural logic of the system. In March 2023, the Swiss federal authorities did not allow the market to operate, did not open insolvency proceedings, did not apply the ordinary rules of creditor hierarchy. They engineered, in seventy-two hours, a forced merger between two private entities — compelling UBS to absorb Credit Suisse — while simultaneously guaranteeing nine billion francs of potential losses on public funds.¹

The Swiss government passed an Emergency Ordinance on 16 March 2023, granting FINMA the power to bypass shareholder general meetings and to order the write-down of AT1 instruments. The bailout was implemented by administrative fiat, bypassing both parliament and the shareholder assemblies of the affected banks.² The sixteen billion dollars of AT1 bonds — instruments contractually senior to equity in the standard creditor hierarchy — were annulled entirely. Shareholders, who should have lost everything first, received 3.25 billion dollars in UBS shares. Goldman Sachs described the operation as the largest loss ever inflicted on AT1 investors since the birth of that asset class after the 2008 financial crisis.³

This is the Too Big to Fail test in its pure form: not a bailout softened by political necessity, but a sovereign legal decision to suspend the legal order to preserve a financial entity. The fiction won. The law yielded. And the order of losses was not determined by law, contract, or any creditor hierarchy — it was determined by administrative decree, in a weekend, without democratic deliberation.

III. The accountability question: who paid, who answered?

After the dust settled, the question of individual accountability produced the most revealing answer of all: essentially none. Credit Suisse had accumulated, over more than a decade, a record of compliance failures that would be remarkable even for a minor institution. In June 2022, it became the first major Swiss domestic bank to receive a criminal conviction — for failing to prevent a Bulgarian cocaine trafficking ring from laundering money through its accounts. That conviction was subsequently annulled on appeal in 2025, on the procedural ground that the individual employee initially found guilty had died in April 2023, making it impossible to examine the bank's liability without violating the presumption of innocence.⁴ The bank's criminal record thus disappeared with the death of a subordinate.

On the American front, Credit Suisse Services AG pleaded guilty in August 2025 to conspiring to conceal more than four billion dollars from the IRS across at least 475 offshore accounts, paying more than 510 million dollars in penalties.⁵ The entity paid. No individual director was named in the proceedings. The legal person absorbed the sanction. The human beings who designed, supervised, and profited from these structures continued, for the most part, their careers.

The shareholders of Credit Suisse — the human beings who had benefited from dividend distributions during the years of excess — received 3.25 billion dollars in UBS shares in the rescue. They were not wiped out. The AT1 bondholders — institutional investors who had extended credit in good faith under instruments contractually ranked above equity — received nothing. Thousands of them have since filed proceedings before Swiss courts and under bilateral investment treaties.⁶ It is the victims who litigate. The procurators remain silent.

The answer to the question 'who paid to their last penny' is therefore precise — and the precision is damning. The AT1 bondholders paid in full — wiped to zero by administrative decree. The Swiss taxpayer guaranteed nine billion francs in potential losses. And the shareholders? The formulation that they 'paid partially — at a fraction of market price' is legally accurate but economically false, and the distinction matters enormously to any theory of commutative justice. A shareholder who purchased stock at twenty francs, received dividends for a decade, and sold at fifteen francs during the collapse has not suffered a net patrimonial loss. The dividends extracted during the prosperous years may well exceed the capital loss realised on exit. What he loses is a hoped-for future gain — not an effectively invested patrimony that disappears. The informed shareholder — the one who reads the warning signs, sells before the floor, waits out the crisis, and buys back at the trough — loses nothing at all. He has extracted value during the good years and externalised the risk of collapse onto others: the AT1 holders, the employees made redundant, the taxpayer standing as guarantor. At no point has he put a single franc of his pre-existing patrimony on the table to pay for the consequences of a management he implicitly endorsed by holding his position and cashing his dividends. This is the structural irresponsibility of the shareholder model as it currently operates worldwide: the principle of limited liability — conceived to encourage investment — has become an instrument of systematic immunisation. Those who benefit most during the ascent contribute least during the descent. Commutative justice, in its most elementary formulation, requires that he who received during the good years contribute in proportion to what he received — not merely to the residual value of his portfolio at the moment of collapse.⁷ The directors, the architects of the risk, the compliance failures, the decade of scandal — they paid nothing in criminal or civil terms that was commensurate with the damage produced. The FINMA regulator itself, which had oversight responsibility throughout, issued no proceedings against the individuals responsible.⁸

There is a further dimension to this irresponsibility that corporate law has systematically refused to name. When a company faces insolvency, the shareholder convened in general assembly has precisely two options. The first: he votes for recapitalisation, injects fresh funds, dilutes his holding, and accepts the consequence of the risk he chose to run. This is the normal logic of limited liability — you risk what you put in, and if you wish to save the enterprise, you pay. The second: he refuses or is unable to do so, and the company is liquidated. His shares become worthless. This too is coherent — the owner who no longer wishes or is no longer able to save his property abandons it, and it passes to creditors in the hierarchy established by law. These two options exhaust the space of what is legally and logically possible. Too Big to Fail introduces a third option that has no basis in ordinary law: the shareholder neither recapitalises nor loses his title. The state intervenes with public money, absorbs the loss, restores the entity — and returns it to the shareholder with his ownership intact, merely depreciated. The question this raises is elementary and has never been satisfactorily answered: if the owner of a property refuses or is unable to save it, why should the commons finance its rescue while leaving him the title deeds? In no other domain of private law does such a mechanism exist. The tenant who cannot pay is evicted — the state does not pay his rent and allow him to remain. The insolvent entrepreneur loses his assets to the liquidator — the state does not cover his debts and return him his business. The Too Big to Fail doctrine creates, for a specific category of owners, a right that exists nowhere else in the legal order: the socialisation of losses without the socialisation of property. The state pays as an owner. It does not become one. And the private owner, once the storm has passed, recovers his asset — now cleaned, stabilised, and underwritten by public funds — ready for the next cycle of dividends.

IV. The boulimia of scale and the infinite regression

There is a dimension of the Credit Suisse case that the financial press has noted without drawing the necessary conclusions: UBS, after the forced absorption, became a bank whose balance sheet exceeds the entire Swiss gross domestic product.⁹ The combined balance sheet post-merger is estimated at approximately twice Swiss GDP.¹⁰ It is now, structurally, more Too Big to Fail than Credit Suisse ever was. The operation that was supposed to resolve the systemic risk has produced an entity carrying a greater systemic risk than the one it replaced. The CEO of UBS responded to this observation at Davos in January 2024 by suggesting that the Swiss public had been 'indoctrinated almost daily' by academics who raised the concern.¹¹ The dismissal of a structural legal and economic argument as indoctrination is itself a revealing symptom.

This is not an accident. It is the logical consequence of the principle itself. Every Too Big to Fail rescue produces a larger entity than before. Every larger entity is more Too Big to Fail than its predecessor. The chain is self-reinforcing: the solution becomes the next problem, at a higher scale.

The regression that results is vertiginous. An entity Too Big to Fail is saved by another entity or a state. The state that saves it may in turn become Too Big to Fail — which is no longer a metaphor when one examines the Greek case of 2010 to 2015.

Here, something occurred that had no precedent in the history of modern European democracies: not merely a sovereign state placed under tutelage by the troika. Beyond the state, it was the Greek people itself — an entire people, eleven million citizens — that was placed under curatelle. Pensions cut by external decree. Labour legislation dismantled by creditor instruction. Electoral mandates overridden by memoranda negotiated in Brussels and Frankfurt. The state survived as a legal fiction. The people, as a constituent power, was suspended. This is the first time in the history of the European Union that a sovereign people was formally subjected to the guardianship of supranational institutions acting on behalf of financial creditors.

A counter-argument imposes itself — not as a provocation, but as a logical demonstration. Had Greece chosen, in 2010 or 2012, to exit the European Union and the eurozone, to formally declare state insolvency, and to undergo a controlled collapse — would the outcome for the Greek people have been substantially worse? The sacrifices extracted under troika supervision were brutal and prolonged: pension reductions of up to forty percent, unemployment exceeding twenty-seven percent, a decade of recession, a generation of emigration.¹² And the economy had contracted by more than twenty-five percent compared with its 2007 level — a depression comparable in magnitude to the American crash of 1929 to 1933, but without the subsequent recovery.

Had Greece exited, comparable sacrifices would likely have been structurally unavoidable. A sovereign default requires austerity. A return to the drachma would have compressed purchasing power. But borne under sovereignty, that pain would have been democratically chosen, politically negotiable, and institutionally reformable. And here the historical argument is decisive: Greece is a civilisation that predates the European Union by thirty centuries. It has survived the Persian invasions of 490 and 480 BCE, Macedonian conquest, Roman annexation in 146 BCE, four centuries of Ottoman rule, and Nazi occupation.¹³ To suggest, as European leaders did in 2012, that Greece would cease to exist without its eurozone membership was not an economic forecast. It was a political threat — a form of existential blackmail directed at a people whose survival through empires and occupations is precisely the definition of historical continuity. The Greeks would have endured. The solutions found under sovereignty might have been wiser, or more adapted. Perhaps not. But they would have been Greek. In a democracy, that is not a detail. It is the substance.

The argument for remaining in the Union was contagion containment. This argument is structurally identical to Too Big to Fail: do not permit the controlled collapse because the uncontrolled consequences are too uncertain. And it produced the identical result: the cost was borne exclusively by the weakest party. The money lent in the three successive bailout plans went primarily to repay pre-existing debt and to recapitalise the banks — not to the Greek economy.¹⁴ The IMF itself acknowledged internally that the programme was designed as a 'holding operation' to protect other European states' banking systems.¹⁵ Stiglitz's verdict was unambiguous: the Greek rescue was not a rescue of Greece. It was a rescue of the Western banks that had lent irresponsibly.¹⁶ The structural reforms imposed amounted to a cosmetic renovation — a façade lifted — while the fundamental causes of the original dysfunction, including the architecture of the eurozone itself, remained entirely untouched. Contagion was contained. The creditors were made whole. The people were placed under curatelle. The distribution of sacrifice was not democratic. It was financial.

And beyond the state? The supranational institution — the IMF, the ECB, the BIS — which itself depends on the states that finance it. Who saves the saviour of the saviour? The question has no answer within the system. Because the system rests on an implicit hypothesis: that it cannot collapse in its entirety. This hypothesis is a faith, not a guarantee. The Too Big to Fail principle is an infinite promise in a finite world. The chain must eventually break. The domino effect, when it occurs at that scale, will not be confined to a sector, nor to a country, nor to a continent.

To conclude :  The utopia named — and its only solution

The intellectual honesty that the doctrine lacks is to call this principle by its real name: a utopia of perpetuation. The state that saves the Too Big to Fail entity does not solve the problem. It defers it, enlarges it, and transfers its cost to those who had no part in producing it. In doing so, it contradicts the foundational logic of the legal fiction it is saving.

There is, however, a solution. It is simply the one that no political institution dares to name, because it requires accepting, in advance, a controlled pain in order to avoid an uncontrolled catastrophe. The solution is amputation. When a limb is gangrenous, the surgeon does not preserve it by injecting public funds. He removes it, at the cost of a defined and localised suffering, to save the organism. The same logic applies to a financial entity that has become systemically toxic: the controlled collapse, organised in advance, with ring-fenced mechanisms to protect depositors and isolate contagion, is structurally superior to the deferred rescue that produces a larger entity and a greater future risk.

Civil engineering has known this for a century. When a bridge is structurally compromised beyond repair, no engineer advocates indefinitely maintaining traffic on it by reinforcing it with concrete injections at public expense. The bridge is demolished — in a controlled manner, at a chosen moment, with perimeter security, alternative routes prepared in advance, and a precise detonation sequence calculated to contain the collapse within a defined zone. The destruction is the solution. The controlled implosion of a Too Big to Fail entity — with pre-established insolvency procedures, protected deposit guarantees, orderly liquidation of assets, and criminal accountability for the directors who produced the failure — is the civil engineering of finance. It is the only response that does not generate a larger problem than the one it resolves.

The legal person — whether a bank, a corporation, or a public authority — is a creation of the sovereign. What the sovereign creates, the sovereign can withdraw. If the fiction becomes untouchable, if it can no longer be dissolved by the power that gave it existence, then it is no longer the people who are sovereign. It is the fiction itself. Too Big to Fail, pushed to its structural conclusion, is not an economic policy. It is the juridical consecration of the sovereignty of the fiction over the sovereignty of the people.

Miguel Vidal Brajo-Jandia

Ingénieur — Master II Droit, UFR Montpellier I / Paris II Panthéon-Assas

Notes et references