There's been suggestions for years about how the US federal government should break up companies that are "too big to fail", i.e. their failure would pose a systematic risk to the entire economy. The federal government is clearly unwilling to actually consider this. But could a state government forbid such a company from operating in their borders? Could Tennessee, to pick my own, declare that all Citibank operations must cease in the state?

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    Are you suggesting that a company would be limited in its growth? That doesn't sound like something people would like. – PointlessSpike Apr 24 '15 at 15:32
  • If you have many small banks, they also can fail in a chain reaction damaging the entire economy. But they would be more difficult to save. – Anixx Apr 24 '15 at 16:13
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    I'm not asking whether it's a good idea. I'm asking whether it's legally possible. – Stephen Collings Apr 24 '15 at 17:37
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    At first glance, it could well be an unconstitutional bill of attainder (which is one of the few things a state is banned from under the original constitution). – cpast Apr 24 '15 at 18:19
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    @PointlessSpike anti-trust laws? – user1530 Apr 24 '15 at 22:35

It is unconstitutional to make a law which is explicitly against a specific entity ("Citibank must not operate in our state") but they could make a more general law which applies to all entities which fulfill certain criteria ("Banks with an international business volume of more than X and any of their subsidiaries must not operate in our state"). An actual law would of course need to be a lot more complex to close any of the bookkeeping loopholes big banks would find and exploit immediately, but you get the idea.

However, when the goal is to prevent another banking collapse, such a law would be counter-productive. It would hurt the big banks affected by it and could cause one to collapse, which would result in the feared banking collapse spiral.

It would also hurt the economy in the state as a whole, because it would not just drive the big banks out of the state but also all the companies which make business with them.

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    You sure you could make a law based on international business volume? States are restricted in how much they can regulate interstate and international commerce; I could definitely see a court ruling that a state doing this is effectively trying to regulate international commerce from their state (although I could also potentially see a court going the other way). – cpast Apr 25 '15 at 17:23
  • I'd guess that this would at least be challenged under equal protection, if nothing else. Just because you can define a certain criterion other than naming specific entities doesn't mean you aren't violating equal protection. For example, you can't say "people with skin that reflects less than x% of electromagnetic energy in the visible light spectrum are not allowed to live in our state," even though it's a specific criterion. – reirab May 2 '15 at 6:03

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