Banking on the Cloud

On Friday, I attended and spoke at my first BLPB Symposium: Connecting the Threads III.  I learned a ton from listening to the presentations of my co-bloggers, the faculty and student responses to each presentation that followed, and questions from the engaged audience.  It was a great event made possible by the hard work of the U. of Tennessee College of Law student editors and staff of Transactions: The Tennessee Journal of Business Law.  In particular, Colleen Conboy and Tanner Hamilton did an excellent job of organizing the event, and co-blogger Joan Heminway and her faculty colleague George Kuney, the Director of the Clayton Center for Entrepreneurial Law and Lindsay Young Distinguished Professor of Law, also deserve thanks and kudos for their involvement!  I can’t wait for next year!

My presentation, Banking on the Cloud, shared its title with my Symposium paper (w/David Fratto and Lee Reiners).  Professor Gary Pulsinelli and law student Savannah Darnall commented - big thank you to both!  My remarks began by noting that this title referred to two important realities: 1) the amount of financial industry outsourcing to cloud service providers (the big three: Amazon Web Services, Microsoft Azure, and Google) is significant and growing, and 2) as an economy, we’re increasingly “banking on”/ “counting on” that the lights at cloud service providers, similar to the case of electric utilities, will always be on.  In a nutshell, we argue that significant cloud service providers are fast becoming critical financial market infrastructure and a new source of systemic risk in financial markets.  We contend that such entities can and should be designated as systemically important financial market utilities under Dodd-Frank’s Title VIII. 

We’ll post our article to SSRN soon, and I’ll plan to blog more about it then.  For readers who just can’t stand the wait, I’ve two suggestions: 1) see our abstract below, and 2) our paper extends Fratto and Reiners’s post, A New Source of Systemic Risk: Cloud Service Providers, and my work on Dodd-Frank’s Title VIII, and you can check out both! 

Abstract: Cloud computing is fast becoming a ubiquitous part of today’s economy for both businesses and individuals.  Banks and financial institutions are no exception. While it has many benefits, cloud computing also has costs and introduces risks.  Significant cloud providers are single points of failure and, as such, are an important new source of systemic risk in financial markets.  Given this reality, this article argues that such institutions should be considered critical infrastructure, and designated as systemically important financial market utilities under Dodd-Frank’s Title VIII.