Reform of American Business Law

In previous sessions we discussed the Law fencing permitted from prohibited in securities markets since the nineteen thirties, arguably closing the paddock when the stallions had already fled. Today we will see if the same was true of banking law.

In terms of purpose, we said Securities Law was there to protect investors and, as desirable side effects, enhancing market efficiency, and (more recently) correcting market failures. Why not suggest that Banking Law is there to protect depositors, enhance the banking system efficiency and suppress market failures?

Both Securities Law and Banking Law may pursue broader social objectives, such as containing systemic risk, fighting money laundering or facilitating the acquisition of houses.

May I suggest you handle "Systemic risk" with care, because there was a time when crises originated at the periphery of capitalism (Asian Flu, Tequila Crisis, etc.) and we used to blame them on bank-based financial systems (systems in which funding is mainly available from banks). Implicitly, we thought that only banks meant a systemic risk, because bank liabilities are non-contingent.

Now the current crisis (which by the way originated at the core, not the periphery of capitalism) taught us that there is "systemic risk" in the securities market, too; and also in supply chains; and ultimately there can be "systemic risk" in every "system", which should surprise nobody. So handle "systemic risk" with care, and don't think it is necessarily specific to some form of economic activity such as banking.

Back to purpose, or ratio legis as we Lawyers sometimes say of Securities Law and Banking Law, "protecting investors" and "protecting depositors" may sound very similar, except that the meaning and scope of "protection" is not the same.

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