Reform of American Business Law

Similar runs can happen in stock (or other derivatives) markets. If you think that the value of a given paper will collapse, you run to sell. If you are fast enough, you may be able to sell before the prices sink. But other people see you running and they run too; supply increases depressing prices - self-fulfilling the prophecy that prices would plummet. Thus market capitalization and funding prossibilities of the business drop dramatically, also self-fulfilling the clouds in the future of this business.

"Bank run" is a just a convenient shortcut, because what actually happens does not have much to do with your getting a better place in the queue. It may have more to do with what the Law provides about individual collection. In one scenario, the deposits are paid immediately with whatever money is left; and debt maturing later is not paid, because there is no money left. In another, as soon as the debtor is recognized insolvent, a stay of individual collections against the debtor is ordered by the Court -because risk is mutualized, running is pointless and does not happen. In a third scenario, deposits are guaranteed by the Federal Deposit Insurance Company (FDIC) and there is no need to run either.

So perhaps it is a good idea to see what Bankruptcy Law actually provides in the US, to see if it needs reform or doesn't. Students with a legal background should take this as a comparative law exercise, using their knowledge of their own law as reference.

Pages: 1 · 2 · 3 · 4