Banking and the Social Contract

Georgia Law Professor Mehrsa Baradaran recently uploaded Banking and the Social Contract to SSRN.  This article asserts that there exists today and has always existed an interdependent relationship between banks and the state.  This social contract has existed since the inception of banking in the United States and has been reinforced over time, but it has recently become weakened due to the growing size and political power of a few banks. This article for the first time tracks the evolution of the social contract in banking from Alexander Hamilton’s first push for banking to the recent bailout of the nation’s banks. The article explores why it is that banks and governments are bound together, why the relationship is inevitable, and how it has gone awry. The article then proposes that given the transformed banking landscape, the social contract needs to be reestablished. The social contract should focus on the three main needs of the public: bank safety, consumer protection, and access to credit.