John Ransom

Most states have laws on their books that make it illegal to spread statements about a bank in order to undermine confidence in the bank.

They do this for the very good reason that when a run on a bank starts through rumor or innuendo and the bank goes belly up- and it happens very quickly- it costs taxpayers money, it costs shareholders money and it costs society as a whole.

The rule, in other words, is to be very careful about what you say about banks. Banks live by these rules and so do regulators. In fact, when a bank is in trouble with regulators, the information is considered confidential and not to be disseminated to the public.   

Here’s the relevant code from New York:

    § 671.  False  statements  or  rumors as to banking institutions.  Any person who wilfully and knowingly  makes,  circulates  or  transmits  to  another or others any statement or rumor, written, printed or by word of   mouth,  which  is  untrue  in  fact  and  is  directly  or  by inference  derogatory to  the  financial  condition  or  effects  the  solvency  or financial  standing  of  any bank, private banker, savings bank, banking association, building  and  loan  association  or  trust  company  doing business  in  this  state,  or who knowingly counsels, aids, procures of  induces another to start, transmit or circulate any  such  statement  or rumor, is guilty of a misdemeanor.

Really, it’s in our best interest to foster confidence in our banking system rather than the opposite. The whole banking system rests on people’s confidence in it: banks have confidence debtors will pay; debtors have confidence that they’ll be able to pay and depositors have confidence that the bank will be able to pay. Confidence is why laws like trying to adversely effect  the  solvency  or financial  standing  of  any bank are on the books to begin with.

John Ransom

John Ransom is the Finance Editor for Townhall Finance, host of Ransom Notes Radio and you can catch more of the best money advice and monetary commentary by him daily 10am PT, 1pm ET at or on Comcast Cable