Can You Yell 'Run' in a Crowded Bank?

Many states have laws on the books prohibiting anyone from making disparaging comments about a particular banks financial condition. This talk is thought to be outside free speech because rumors can trigger a bank run, but a recent ruling has some banks worried.

Many states have laws on the books prohibiting anyone from making disparaging comments about a particular banks financial condition. This sort of talk is thought to be outside free speech because just the slightest rumor can trigger a bank run. Of course, not much of a line needs to develop at the teller window for bankers to get nervous, because they dont keep much cash around to satisfy withdrawals. Depositor money is lent out or invested, or in the case of J.P. Morgan, used for speculating in London.

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In California, theres been an anti-bank run law on the books since 1917 prohibiting a person from spreading false information about a banks condition. In this age of deposit insurance and the FDIC, the law hasnt been tested much. But along comes Robert Rogers, who as an ex-employee of Summit Bank posted a rant and rave on Craigslist, saying, I would suggest that anyone that banks at Summit Bank leave before they close.

Rogers, who served as the banks chief credit administrator and vice president, also took the opportunity to post what American Banker describes as vulgar comments about the banks chief executive officer and her son.

The bank sued Mr. Rogers for libel, to which the ex credit administrator countered that his speech was protected by the First Amendment. So, the lawyers for Summit pulled out a copy of the 1917 law and claimed his statements should not be considered free speech.

But the appeals court in a 30-page opinion said, We find section 1327 cannot be reconciled with modern constitutional requirements. The court went on to say, When analyzed under modern constitutional jurisprudence, the broad provisions of Financial Code section 1327, on their face, impermissibly sweep within their proscriptions speech that cannot be criminally punished.

The justices said the law is too vague and has too broad a reach, and said the law lacks a requirement included in other statutory restrictions on speech that a speakers statement be proven to be malicious, reports AB.

It is a criminal libel statute without a malice requirement, which is designed to prohibit speech based on its content, the court said. It fails to give persons of ordinary intelligence fair notice of what is forbidden. It sets no discernible limits on what types of speech can be criminalized, and, allowing such free range, it lends itself to arbitrary enforcement.

Of course bankers and their attorneys are troubled by the decision.

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Can You Yell 'Run' in a Crowded Bank?