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95 Notre Dame L. Rev. Online 1 (2019-2020)

handle is hein.journals/ndalro95 and id is 1 raw text is: 


                                John Crawford*


      If you have $1 million and keep it in cash, there is no chance of default and
your wealth will always retain its value in nominal terms. Logistical costs and
security concerns, however, generally prompt those with that much money to hold
it in account form-in bank deposits, money-market funds, or other credit
instruments.' But if you hold $1 million in account form, there generally is a risk of
default.2 This is not only inconvenient for managers of large cash pools; it also
creates the risk of panics-i.e., en masse, systemwide withdrawals from such
accounts due to fear of delay or loss. Panics remain the most dangerous source of
instability in the financial system today.3
      Providing better options to hold money safely is desirable and feasible; failure
to do so is a serious but fixable flaw in the legal architecture of money and payments

    ©   2019 John Crawford. Individuals and nonprofit institutions may reproduce and distribute
copies of this Essay 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 Reflection, and includes
this provision and copyright notice.
    *   Professor of Law, University of California, Hastings College of the Law. I am grateful
to Abe Cable, Adam Levitin, and Lev Menand for extremely helpful comments.
    1   A desire for yield is also relevant to this choice, though it is not dispositive: in the rare
cases where interest rates have gone negative, there has not been a large shift to cash holding. See,
e.g., Thomas Hale & Dan McCrum, Why Do Investors Buy Negative Yield Bonds?, FIN. TIMES,
April 12,2016 (Buying negative yielding debt might be considered similarto paying a government
to guard your money in a vault.).
    2   Deposit insurance on bank accounts is capped at $250,000 per account. See 12 U.S.C.
§ 1821(a)(1)(E) (2012).
    3   On the susceptibility of short-term debt to runs and panics, see, e.g., Jack Bao et al., The
Runnables,    BOARD     GOVERNORS      FED.     RES.    SyS.    (Sept.   3,    2015),
https ://www.federalreserve.gov/econresdata/notes/feds-notes/20 15/the-runnables- 20150903 .html.
On the persistence of vast amounts of panic-prone debt in the system, see, e.g. VOLCKER ALL.,
UNFINISHED    BUSINESS:   BANKING     IN   THE    SHADOWS     14   fig.   1   (2016),
https://www.volckeralliance.org/sites/default/files/attachments/VolckerAlliance UnfinishedBusin
essBankingInTheShadows.pdf; Bao et al., supra. On the pernicious effects of panics, see Ben S.
Bernanke, The Real Effects of the Financial Crisis: Evidence from the Global Financial Crisis,
BROOKINGS     PAPERS   ON   ECON.    ACTIVITY,   Sept.  2018,   at   1,   title page,
https://www.brookings.edu/bpea-articles/the-real-effects-of-the-financial-crisis/ ([T]he unusual
severity of the Great Recession was due primarily to the panic in funding and securitization
markets, which disrupted the supply of credit.).

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