Spreading bank rumors is against Georgia law

ATLANTA --- Has talk about bank failures got you worried that your bank may be the next to go under, taking your money with it?

Maybe it's best to keep it to yourself.

A Depression-era Georgia law makes it a felony to spread or publish false statements about the financial solvency of any financial institution or its ability to meet obligations. A conviction can draw a fine of up to $10,000.

Few in the banking industry know of anyone ever being prosecuted for spreading such financial falsehoods.

And expressing your opinion as an armchair analyst probably won't attract state prosecutors.

But as the industry enters another shaky period -- especially one swirling with talk of 150 bank failures nationwide in the coming months -- bankers say the law is just as relevant now as it was when first passed in 1919, and substantially revised four years after the 1929 economic collapse.

Words about a bank's condition can lead to a run on a bank and its collapse, according to Walt Moeling, attorney for the Georgia Bankers Association.

As evidence, a warning from U.S. Sen. Charles Schumer set off a run on California's IndyMac Bank earlier this month, Mr. Moeling said.

But IndyMac likely would have failed anyway, Mr. Moeling said.

Still, the jitters investors received from seeing lines of nervous customers snaking around IndyMac branches, and the sudden wave of customers "needlessly" withdrawing their deposits here in Georgia, could have been prevented if the warning had not been issued, Mr. Moeling said.

But doesn't limiting what people can say run afoul of the right to free speech?

Not necessarily, says Mr. Moeling, who added that the First Amendment has protections and a slightly lower standard for what people can say in the realm of commercial speech.

Judy Newberry, deputy commissioner for legal and consumer affairs for the Georgia Department of Banking and Finance, said the law does not prevent analysts and other people from giving opinions on a bank's stock.

"There would be a line that even an analyst couldn't cross," such as naming a date when a bank would fail, Ms. Newberry said.

Reach Jake Armstrong at (404) 589-8424 or jake.armstrong@morris.com.