Session 8 - Discussion Session — TBTF, Stablecoins, & “Start a Bank?”

Pick a side. Then see both sides explained, why the instructor supports one side, and the final judge verdict. Animated colors make the win/lose obvious (and fun).

Debate 1 — Too Big To Fail (TBTF)

Side A — “Big banks will always be bailed out”

Systemic risk is so dangerous that the government must rescue large banks to avoid collapse.

Why some argue this: 2008 memories, fear of fast digital runs, and the government’s desire to avoid chaos.
Evidence they point to
  • Past emergency guarantees during crises.
  • Interconnected payment systems and panic dynamics.
Weak spots
  • Post-2008 tools target resolution without taxpayer loss.
  • Equity and certain debts designed to absorb losses first.
Contagion fear Political pressure

Side B — “Failure allowed; services preserved”

Modern frameworks aim to let a big bank fail while keeping deposits/payments running. Investors take losses first (bail-in/TLAC).

Why some argue this: Dodd-Frank resolution, living wills, stress tests, GSIB surcharges, and liquidity/capital buffers.
Evidence they point to
  • Resolution planning (“living wills”), TLAC/bail-in structures.
  • Supervisory stress tests and higher buffers for GSIBs.
Weak spots
  • Extreme, fast-moving crises may still push extraordinary measures.
  • Cross-border coordination can be messy.
Resolution tools Investor loss-absorption

Debate 2 — Stablecoins & Banks

Side A — “Stablecoins will kill banks”

Deposits move to stablecoins, banks lose funding, and banking becomes obsolete.

Why some argue this: Better UX, programmability, and the ability to offer yield on reserves/T-bills could attract users away from deposits.
Evidence they point to
  • Rapid growth during crypto upcycles.
  • Fast settlement on some chains vs legacy rails.
Weak spots
  • Most stablecoins still depend on banks/custodians or money funds.
  • Run/regulatory/custody risks; on/off-ramps require banks.
UX advantage Programmability

Side B — “Coexistence & adaptation”

Asset-backed stablecoins interact with banks and Treasuries. They shift funding mix/pricing and push banks to innovate (tokenized deposits, faster rails).

Why some argue this: Reserves often sit in bank deposits/T-bills; regulation can bound risks; households still need credit intermediation.
Evidence they point to
  • Custodial banks and money funds hold reserves/collateral.
  • Upgrades to bank rails (RTP/instant) narrow UX gaps.
Weak spots
  • Large scale could pressure low-cost deposits at the margin.
  • Operational and regulatory clarity still evolving.
Bank–coin linkages Payments innovation

Debate 3 — Start-a-Bank?

Side A — “Easy to start a bank”

Just raise money and open; tech makes it cheap and fast.

Why some think so: Neobank apps launch quickly; cloud cores and vendor stacks appear turnkey; venture funding can move fast.
Evidence they cite
  • Visible front-end launches in months.
  • Bank-as-a-Service (BaaS) partners reduce build.
Weak spots
  • Front-end ≠ charter. De novo approval needs governance, risk, compliance track record.
  • Ongoing supervision and capital planning are continuous, not one-off.

Side B — “Hard, heavily regulated”

Requires charter, capital, experienced management, strong compliance, and often years of review.

Why this view: Fit-and-proper tests, safety & soundness expectations, AML/KYC controls, vendor oversight, and a credible business plan.
Evidence they cite
  • Multi-year de novo timelines in many jurisdictions.
  • Capital and liquidity planning, stress testing, resolution thinking.
Weak spots
  • Partner models can deliver products without full charter (trade-offs apply).
  • Some regions have sandbox/limited licenses that shorten time.

Mini Tool — De novo vs Partner (toy)

24 mo

Results:

Toy math: de novo burn ≈ team × $180k/yr × (months/12) + 15% overhead + compliance setup; partner ≈ fee × users × 12. Not advice.