By Matt Johnson
In a Minneapolis City Council meeting on December 8th, Council Member Alondra Cano who represents Minneapolis’ 9th Ward along with Council Member Cam Gordon who represents Minneapolis’ 2nd Ward proposed a staff direction to explore options to discontinue doing business with Wells Fargo in Minneapolis because of the companies investments in the Dakota Access Pipeline.
In Wells Fargo’s place, both council members put forth the idea of Minneapolis establishing a “municipal bank or participating in a publicly owned banking operation” as the Star Tribune reports. However, this idea if followed through to actual policy will not only create problems that currently don’t exist but it will create some unintended market problems as well.
In previous articles, this blog highlighted the complex relationship fossil fuels have with the market place in the form of energy and products; and it also illustrated the market benefits in both the public and private sectors from doing business with Wells Fargo. But there is an additional consideration to maintaining a relationship with the financial institution. It spreads risk through the various systems’ levels of the local, state, federal, and international economies.
In their economics paper Institutional Persistence and Change: The Question of Efficiency, Brian Binger and Elizabeth Hoffman illustrate the profound importance of a financial institution like that of Wells Fargo. As they describe,
Today, our complicated economic system could not function without banks to bring together borrowers and lenders and spread risk…If we introduce only local banks we gain by bringing [only] local borrowers and lenders together, but if we then introduce interstate and international banking we can spread risks much more efficiently.
So why is Wells Fargo important? Because it spreads risk through the different levels of the economic system so not one city, one firm, or one group of people are burdened with all the risk. If risk is to high, there will be no benefit to investing, borrowing, or hiring. And this is precisely what Minneapolis needs one of its largest financial firms to do.
It needs it to continue investing, borrowing, and hiring in Minneapolis. Business growth is always good for Minneapolis along with policy that supports that growth.
One final thought, I agree with Council Member Cano. The City of Minneapolis ought to be more meticulous about who it does business with. That’s good solid business practice for any public or private sector firm. And Wells Fargo ought to be criticized for its past business practices, and I’m not talking about the Dakota Access Pipeline.
As Bloomberg reported in September,
Wells Fargo was fined $185 million by various regulators for opening customer accounts without the customers’ permission…
Obviously this is an appalling business practice, and Wells Fargo was punished accordingly. But vetting, criticizing, and punishing businesses is a whole different level than proposing to stop doing business outright, especially when this directive seems to suffer from ignorant and impolitic economic and scientific thinking.
Photo credit: The Systems Scientist
Copyright ©2016 – The Systems Scientist