Private Policies and Public Power: When Banks Act as Regulators within a Regime of Privilege

80 Pages Posted: 15 Nov 2019

See all articles by Brian Knight

Brian Knight

George Mason University - Mercatus Center

Trace Mitchell

George Mason University - Mercatus Center

Date Written: October 9, 2019

Abstract

An emerging trend in financial services is banks’ increasingly common refusal to do business with industries for political reasons rather than for traditional business justifications. Banks’ refusals are often explained by a desire to make a difference or send a message. While this desire may not raise a concern in most cases, banks are not like most other businesses. Banks enjoy an extensive regime of privilege provided by federal and state governments that includes barriers to market entry and exit, more favorable regulatory treatment than nonbank competitors in some areas, and direct and privileged access to services provided by the government. This paper asks whether this public power, granted to banks for the purposes of facilitating lawful commerce, is being misused when banks try to regulate downstream markets through withholding services and what, if anything, should be done to address these actions by banks.

Keywords: banks, banking, private regulation, public power, economic privilege, regulation, financial services, too big to fail

JEL Classification: G2, G3, K1, K2, L2, L5, M1, N2

Suggested Citation

Knight, Brian and Mitchell, Trace, Private Policies and Public Power: When Banks Act as Regulators within a Regime of Privilege (October 9, 2019). Mercatus Research Paper. Available at SSRN: https://ssrn.com/abstract=3487062 or http://dx.doi.org/10.2139/ssrn.3487062

Brian Knight (Contact Author)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

HOME PAGE: http://https://www.mercatus.org/brian-knight

Trace Mitchell

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States
2396349652 (Phone)

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