So, should we allow banks to fail? As a matter of principle the answer is: of course.
Nevertheless, as Martin Hellwig and Anat Admati point out in their book “The Bankers’ New Clothes”: “The question of whether banks should be allowed to fail rarely arises as a matter of principle.” Thus one would argue that, from a policymaker’s perspective, it may be better to forget about principles and to do what needs to be done to prevent immediate damage.