Vanderbilt Law Review

First Page



Banks play a unique and important role in our economy. They serve tremendously useful economic functions; for this reason, our society has become irretrievably dependent upon them. Banks safe- guard our life savings and business profits, and provide capital to those who need it to buy, invest, or grow.' Although these functions could be performed without an intermediary-private citizens may freely lend their cash to other private citizens who need it-banks are viewed as safer and more efficient controllers of cash flow. They allow depositors to pool their cash resources collectively in one institution; then, retaining a relatively low amount of capital in reserve, they lend the rest to qualified borrowers, thereby channeling the money in an efficient manner.

In order to be successful in this role, however, banks must be perceived as "safe" places to store cash. Otherwise, depositors will not trust banks with their money, and borrowers' ability to obtain capital will be severely restricted. Banks are dependent on depositor confidence for survival. At the same time, depositors are just as dependent, if not more dependent, on the soundness of banks. Banks have gained such a dominant role in our economy that most people and corporations trust them with everything-their livelihoods, their profits, and all or nearly all of their money. Consequently, if banks falter or fail, depositors stand to lose everything. The stability of banks affects nearly everyone in profound ways, and is therefore an important public matter.