I was away from the computer much of yesterday and will be away much of today as well, which is unfortunate, because yesterday, there was very big news. Linden Lab announced a new policy concerning in world banks.

As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter.

Plenty of people are writing about this already. Vstex's post is here. DFC's here, CSL here, AVC here, SLCapEx here and here. Benjamin Duranske provides commentary here. Nobody Fugazi has his comments here. SLNN has this op ed up, and SL Reports has a long list of articles.

With all of that, on top of my limited connectivity, there isn't a lot that I can add at this point, other than a few questions. The first question is what is meant by 'Direct Return on an investment'. While this is aimed at in world banks, will dividends be considered a direct return? If so, it has a profound affect on many companies in Second Life. What does this do to exchanges? To investment companies? The other important question is what Linden Labs will consider 'an applicable government registration'. Does simply forming an LLC or registering a company count? AVC and Wise Metaverse LLC have posted information about their incorporation, but registering a company is very different from a financial institution charter. In addition, Linden Lab has not provided a mechanism, at present, for reporting which institutions have met their criteria to continue banking activities.

So, what does this mean for financial institutions in Second Life? Short term, there is likely to be plenty of volatility. To the extent that the exchanges can keep trading orderly with minimal use of shutdowns, trading halts or automatic circuit breakers, the markets should do fine and should provide some good investing opportunities. To the extent that Linden Labs policies are not excessively strict, those companies that are providing real services can only benefit from this, but building more confidence in the financial markets. The risk at this point is determining which companies are in fact providing real services that will be vetted by Linden Lab.