Centralised Finance: What the Record Actually Shows

Every few years a large bank fails and the state reaches for public money to steady the system. The record runs from Lehman Brothers in 2008 to VBS and Ithala at home. Before deciding your savings sit safely outside that story, it is worth reading the record properly.

A senior executive I respect, a man who runs a significant balance sheet, once closed a conversation with a sentence I have heard in a dozen boardrooms since: "But James, the banking system is regulated. It is safe. That is what I trust."

I understand the instinct. The regulator exists. The deposit guarantee exists. The central bank stands behind it all. My difficulty is that the same architecture stood behind every bank that has failed in my lifetime, so the trust deserves testing against the record rather than the marketing. I have been in Bitcoin since 2016 and the objection has not shifted.

The record is not reassuring.

What 2008 actually cost

Bear Stearns was sold off over a weekend in March 2008 before it could fail in daylight. Lehman Brothers, an institution that had survived 158 years of wars and depressions, filed for bankruptcy that September. Washington Mutual, the largest savings and loan in American history, was seized by regulators. Fannie Mae and Freddie Mac, which between them stood behind roughly half of all US mortgages, were placed into government conservatorship. These were not fringe operators. They were the pillars of the system, trusted precisely because they were regulated.

The rescue that followed was the largest peacetime transfer of private risk onto public balance sheets ever attempted. Congress authorised $700 billion under TARP and the Federal Reserve committed trillions more in guarantees and emergency facilities. Even so, the Congressional Budget Office puts the damage at an economy running $850 billion below its potential, output down 4%, unemployment at 10% and house values down by a quarter. American GDP stayed below potential for almost a decade. Hundreds of institutions closed anyway.

None of it was novel. The savings and loan crisis of the 1980s had already killed more than a thousand American thrifts and cost taxpayers well over $100 billion in the money of the day. The 2008 rescue was bigger, not different.

The people who ran those institutions overwhelmingly kept their gains. In America exactly one senior banker went to prison for the crisis.

March 2023, when it happened again

Fifteen years of new regulation later, Silicon Valley Bank went from investment grade to seized in roughly 48 hours. Research on the episode found the withdrawals materialised within a day or two because the bank's deposits were concentrated among businesses sitting far above the insured cap. Nobody queued in the rain outside a branch. The run happened on phones between meetings. Signature Bank followed within days. First Republic lasted a few weeks longer. The Federal Reserve stood up an emergency lending facility to stop the contagion, fifteen years after the last set of emergency facilities.

The detail I find most telling involves Circle, issuer of the USDC stablecoin. It held over $3 billion of reserves as uninsured deposits at Silicon Valley Bank and faced roughly $2 billion of redemptions in the days around the collapse. Even the crypto industry's dollar tokens turned out to be leaning on the same fragile banking layer underneath.

That same month Credit Suisse, 167 years old and globally systemic, was folded into UBS over a weekend by the Swiss state. Around CHF 16 billion of its AT1 bonds were written to zero by decree. Bondholders who thought they ranked above shareholders found the ranking negotiable once politics demanded it.

Regulation did not prevent any of this. The rescue arrived afterwards, carrying public money.

African Bank, VBS and Ithala: our own record

South Africans sometimes read these stories as foreign weather, a drama that plays out on other continents. Our own record deserves a closer look.

African Bank was placed under curatorship in August 2014 after its unsecured lending book turned bad. The Reserve Bank bought R7 billion of its worst loans while senior bondholders took a 10% haircut. The part most savers never registered is what happened to money market funds. Several had to freeze a slice of the investments ordinary people believed were as good as cash, because those funds were quietly holding African Bank paper. Nobody who owned those units had chosen that risk. It found them anyway.

VBS Mutual Bank was worse. Placed under curatorship on 11 March 2018, it turned out to have been looted from the inside. A forensic report put the fraud at R2.3 billion, with nearly R1.9 billion flowing to 53 individuals over three years. Fifteen municipalities had deposited R1.57 billion irregularly and lost roughly three quarters of it; the Vhembe District put in R350 million and expects about R80 million back. Stokvels and burial societies across Limpopo, savers with the least cushion in the country, absorbed the rest of the blow. Treasury guaranteed retail deposits up to R100,000. The 458 depositors above that line received 7c in the rand in 2022 and a further 20c by January 2025. The former chairman received an effective 15 years in July 2024, which is justice of a kind, though nobody's savings were sentenced back into existence.

Ithala came next. The state-owned lender had taken deposits for years under expiring exemptions rather than a full banking licence. In January 2025 the Prudential Authority applied for its liquidation and roughly 257,000 depositor accounts were frozen with about R2.47 billion inside. People across KwaZulu-Natal lost access to salaries and school fee money in the month fees fall due.

There is a quieter lesson underneath the failures. Money inside the system is conditional in ways savers rarely price. In the 2023/24 year the Reserve Bank's Financial Surveillance Department issued 51 directives blocking R21.7 billion in accounts and R1.4 billion of that was permanently forfeited to the state. Most of those cases presumably involved genuine contraventions. The point stands regardless: a deposit is a promise that can be paused.

None of these failures needed a global crisis. They happened in calm weather.

Does deposit insurance protect your savings?

South Africa finally launched formal deposit insurance in April 2024. The Corporation for Deposit Insurance, a Reserve Bank subsidiary, covers up to R100,000 per depositor per bank. It was overdue; the VBS depositors of 2018 had to rely on an improvised Treasury guarantee at the same level. I am glad it exists and the number tells you who it was designed for. It protects the small saver from ruin. For anyone holding serious cash, R100,000 is the first rung of a ladder that mostly is not there.

Above the line, liquidation is the alternative and liquidation is slow arithmetic. The VBS estate has recovered 25.6% for creditors so far, which its liquidator rightly calls a good outcome; recoveries below 10c in the rand are common in South African liquidations.

The American experience shows the deeper limit. The FDIC covered $250,000 per depositor in 2023 and Silicon Valley Bank still died in two days, because its clients were businesses holding millions. Insurance calms the depositors who were never going to cause the run. The uninsured money moves first and fastest; studies of banking stress show balances above the insured threshold flee to safer instruments the moment confidence wobbles. And the insurance fund itself holds only a small fraction of the deposits it stands behind. Its true backstop is the state, which is to say you.

Deposit insurance is a seatbelt. It is not a reason to trust the driver.

The rescue is built into the design

A bank holds a fraction of your deposit and lends out the rest. That is the business model, not a scandal. It also means no bank can honour all of its promises at once, which is why the law pre-positions the rescue machinery before anything goes wrong. The Reserve Bank is formally the lender of last resort and the designated Resolution Authority under the Financial Sector Regulation Act of 2017. Read that plainly. The statute assumes banks will fail and names, in advance, who will manage the failure.

The incentives follow from there. When gains are private and losses can be shifted to the public, prudence becomes a competitive disadvantage. Economists call it moral hazard. I call it the reason the pattern repeats on a schedule.

There is also the rescue you never see itemised. Every backstop rests on the ability to expand the money supply, which functions as a tax collected without legislation from everyone holding rands. It runs even in years when no bank fails. I traced its mechanics in what is actually happening to your savings.

What Bitcoin removes from the design

On 3 January 2009 the first Bitcoin block was mined with a newspaper headline stamped permanently into it: "Chancellor on brink of second bailout for banks." That was not decoration and it was not an accident of timing. It was a statement of intent from a designer who had watched 2008 unfold and concluded the problem was structural rather than temporary.

The structure Bitcoin replaces it with is severe. Supply is capped at 21 million coins with issuance halving every four years, so no authority can print the rescue. There is no lender of last resort, no resolution authority and no discretionary anything. An asset held this way has no balance sheet behind it that can fail. The protocol has produced its blocks every ten minutes through every panic since 2009, including the weekend Credit Suisse died, without asking anyone for capital.

Honesty requires the flip side. The companies that rebuilt banking on Bitcoin failed like banks, minus the rescue. Celsius paid old depositors with new inflows until it could not. FTX collapsed in November 2022 with roughly $8 billion of customer money gone. Those were centralised balance sheets in Bitcoin's clothing and every client who left coins on them relearned an old lesson at full price. Holders who kept their own keys lost nothing.

So the design only removes the bailout dependency if you complete it. Bitcoin left on an exchange is a bank deposit with extra steps and no insurance. Bitcoin held in your own keys is a bearer instrument with no counterparty at all, a distinction I set out in Bitcoin as a bearer asset. The monetary side, a fixed supply doing the work that deposit insurance only pretends to do, is covered in Bitcoin as sound money. That responsibility is real. It is also trainable, unlike the counterparty risk it replaces, which you can neither audit nor manage from outside.

Where that leaves your savings

The answer is not to close your bank accounts. Banks remain superb infrastructure for transacting and for short-term cash. I use them every day.

My position is narrower. Some portion of long-term savings belongs in an asset that cannot be debased to fund the next rescue or frozen by the next curatorship. I help clients build that position gradually. Savings plans start from R1,000 a month. Guided self-custody starts from R10,000. Larger holdings move into the Vault, a 2-of-3 multisig arrangement that splits keys across separate devices, so no single lost key and no single mistake can cost you the funds. Because Bitcoin carries no deposit insurance, the custody engineering is not optional.

The next failure is already growing quietly somewhere in the system. It will be described afterwards as unforeseeable, the way all of them are. What you control is decided beforehand: how much of your savings sits inside the blast radius when that description gets written.