Banking and the Social Contract
![handle is hein.journals/tndl89 and id is 1321 raw text is: BANKING AND THE SOCIAL CONTRACT
Mehrsa Baradaran*
INTRODUCTION
[Government] support cannot go on forever, which underlines why the Social
Contract for banks must be redrawn. I
- Paul Tucker, Deputy Governor of the Bank of England
Paul Tucker made a prescient comment while perhaps unintentionally
coining the perfect terminology to describe the current problem in banking:
the social contract between the government and banks is out of balance, due
primarily to the increased size and power of a number of banks. This Article
will, for the first time, describe the social contract in banking and explain
how it has gone awry. The recent financial crisis provides a compelling illus-
tration of my argument. In 2008, Treasury Secretary Henry Paulson sold the
Troubled Asset Relief Program (TARP) to Congress and the public as an
undertaking that would help relieve Americans' mortgage debts through
modifications and other direct relief. Congress passed the Act, and Henry
Paulson immediately took advantage of the broad discretion given to him
under TARP to inject billions of dollars directly into the country's largest
banks by purchasing preferred shares.2 Paulson reasoned that this was neces-
@ 2014 Mehrsa Baradaran. Individuals and nonprofit institutions may reproduce and
distribute copies of this Article in any format at or below cost, for educational purposes, so
long as each copy identifies the author, provides a citation to the Notre Dame Law Review,
and includes this provision in the copyright notice.
* Assistant Professor, University of Georgia Law School. I would like to thank
workshop and conference participants at the University of Florida, the University of
Georgia, Brigham Young University, the University of Connecticut Financial Scholar's
Conference, the Association of American Law Schools Annual Conference, the
Southeastern Law Schools Association Annual Conference, and the Law & Society Annual
Conference. I would also like to thank Bob Hockett, Dan Coenen, Saule Omarova, Julie
Hill, Peter Conti-Brown, Anna Gelpern, Christian Johnson, Usha Rodrigues, Kent Barnett,
Lisa Sun, Shima Baradaran, and Jared Bybee for their valuable comments on earlier
versions of this draft. I would also like to thank Heather Percival, Graham Cotten, Maggie
Schaufler, Brian Lake, and Danny Brimhall for their invaluable research support. All
errors are mine.
1 Paul Tucker, Deputy Governor of the Bank of Eng., Speech at the British Bankers'
Association's Annual International Conference: Regimes for Handling Bank Failures:
Redrawing the Banking Social Contract 1 (June 30, 2009), available at http://www.
bankofengland.co.uk/archive/Documents/historicpubs/speeches/2009/speech396.pdf.
2 NEIL BAROFSKY, BAILOUT 25 (2012).
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Banking and the Social Contract
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