‘Betting on JPMorgan Failure’: US Regulators Scrutinize Polymarket Bank-Failure Contracts

U.S. financial regulators and lawmakers are closely watching prediction-market contracts that let traders bet on whether major global banks will fail. The concern is that, if trading grows, the contracts could rattle depositors and fuel an actual bank run.

Bloomberg reported on September 25, citing people familiar with the matter, that the Federal Deposit Insurance Corp. is monitoring bank-failure contracts traded on prediction-market platform Polymarket. The banks covered include Wells Fargo, JPMorgan Chase, Bank of America and Deutsche Bank.

The market is small for now. Trading volume on whether individual banks will fail is mostly in the hundreds to thousands of dollars. Total volume in contracts predicting whether specific banks will fail by the end of this year is about $76,000. An earlier set of contracts that expired in July drew cumulative volume of about $591,000.

Officials are less worried about the market’s current size than about its potential spillover into the financial system. If trading piles into bets that a bank is more likely to fail, depositors who see those wagers may pull their money, potentially setting off a real liquidity crunch. Unlike shorting bank stocks or buying credit-default swaps, the contracts allow direct bets on whether a specific bank will fail.

The possibility of insider trading has also become an issue. The FDIC maintains a nonpublic list of problem banks with weak financial conditions. Senior FDIC officials recently discussed in internal meetings whether ethics rules should be revised to bar employees from trading on Polymarket. They ultimately concluded that existing rules already prohibit trading based on nonpublic information, the report said.

Travis Hill, the FDIC’s acting chairman, also expressed concern at a private event in March about speculation on the timing of bank failures, according to people familiar with the matter. At the same time, he said prediction markets could be a useful tool for monitoring financial risk. The FDIC did not comment publicly on the report.

Polymarket pushed back, saying prediction markets make information accessible to ordinary investors rather than confining it to a small number of financial firms. “Bank rescues and failures are events with major consequences for the U.S. economy,” Polymarket Chief Legal Officer Neil Kumar said. “They can aggregate information from market participants and provide a real-time signal.” Supporters also argue that if the market implies a low probability of failure, it could help calm unfounded rumors and fear.

The contracts at issue are offered on Polymarket’s offshore platform, which bars Americans from trading. Polymarket’s U.S. platform, which is overseen by the Commodity Futures Trading Commission, does not offer contracts tied to the failure of individual banks. Rival Kalshi also does not list such products. Kalshi criticized contracts on bank failures as “inappropriate products.”