Too Big Not to Change: Realigning National Banks' Priorities with Public Interest

Abstract

Banks have particular characteristics that set them apart from other business entities, including being more highly leveraged, benefitting from government safety nets, and generating massive negative externalities when they fail. These attributes mean that in addition to shareholder interests, bank directors should be allowed to carefully consider the interests of non-shareholders, such as creditors, taxpayers, and the overall economy, when making decisions. While directors of banks in states that have enacted constituency statutes may be allowed to consider non-shareholder interests, no federal act expressly allows directors of federally chartered banks to consider such interests. Moreover, to date, thirty-seven states have enacted legislation to allow for the formation of public benefit corporations that require directors to consider the interests of non-shareholders. No federal law provides a clear path for federally chartered banks to do this. This article proposes dual federal legislation that would (i) enable directors of all federally chartered banks to expressly consider non-shareholder constituents when making decisions, and (ii) allow for the formation of national benefit banks that would require directors to consider non-shareholder interests in their decision-making.