Gillian Tett has an interesting column in today’s Financial Times, discussing the recent resolution of one of Kazakhstan’s largest banks, BTA. What’s novel about this particular bank resolution? Well instead of the taxpayer, or the rest of the banking sector, covering a large hole in BTA’s balance sheet, the bondholders are taking the hit (of course shareholders are also taking a loss).

Some of this is probably due to politics; the bondholders in this case are mostly foreign, and of course, the taxpayers are domestic voters. Not that the foreign bondholders didn’t lobby for a bailout.

But putting the politics aside, this represents a real test of whether we are stuck only with the choice of bailouts or mass panic, as argued by the Bernanke-Paulson-Geithner crowd. If, in the weeks ahead, Kazakhstan, and particularly its other banks, are still able to tap the debt markets and its economy does not crater, then I believe we have sufficient evidence to end bailouts here in the United States and start letting the bondholders, instead of the taxpayer, take the losses.

Will lending costs to Kazakhstan banks likely go up? Of course, that is the point. One of the most damaging aspects of the 2008 bank bailouts was the elimination of whatever market discipline remained, in terms of large bank creditors. As most financial institutions fund 90% plus of the activities via borrowing, we simply cannot rely solely on equity, management, and regulators to police their behavior. Only if creditors really have something to lose will we ever have any hope of ending “too-big-to-fail.”