Move Your Money: What Is a Bank Reponsible For?

I am running for state treasurer in Rhode Island these days, and so I find myself talking a lot about banks. For several months now, I've been suggesting we use our state's money as leverage to demand better behavior from the banks we do business with.

As all of us who live here know, we're a small state. But even a small state has the kind of money to make its banks pay attention. Including a variety of different funds, the state of Rhode Island has about a billion dollars in short-term investments, and about a quarter of that is in deposits that amount to cash, more or less. I propose that we only put that money in institutions with a good record of local lending, and who treat their customers well by not charging outrageous fees to cash a check or with usurious credit card interest rates, for example.

(Representative David Segal, currently eyeing a run for Congress here, recently introduced a bill to do exactly this to the General Assembly here.)

At a recent campaign event, a member of the audience identified himself as a VP for mortgage origination at a national bank with a big presence in Rhode Island. He asked, in horrified tones, whether I was proposing to force his bank to participate in a "social program."

Well... Yup. And the name of that program is "community."

I am asking our banks -- and all our nation's businesses, really -- to acknowledge that they are in more than just the business of making money. Businesses have a responsibility not just to their shareholders, but to their customers, suppliers, employees, and to the communities they serve. The businesses who understand that deserve our support -- even if they sometimes charge higher prices.

This is even more true when the service a business offers is integral to the life of the community, like banking.

Does this sound radical? Only to people who believe that the unfettered marketplace is capable of no wrong. As for me, after the unfettered market for synthetic securities and absurd insurance schemes nearly brought down the global economy last year, I demand a little more humility from the free-market fundamentalists I meet. There's nothing wrong with using the state's power to demand better treatment for its citizens. And I'm not the only one to think so.

Kevin Boyce, the treasurer in Ohio, says they recently asked Ohio banks to bid for the state's business using not just "quantitative data", but also "qualitative data" including local lending activity and consumer fees. The office compiled lists of which banks did better in both categories, and chose to do its business with the banks who did best on both lists.

Taking it a step further, Tim Cahill, the Massachusetts treasurer, announced that the state would pull $231 million in state funds from Bank of America and smaller amounts from Wells Fargo and Citigroup in protest of their high credit card rates. Massachusetts law prohibits state chartered banks from charging more than 18% interest, and all three of those banks routinely charge more.

The city council in Los Angeles voted unanimously to support a motion by Councilor Richard Alarcon last month to hold its banks to a higher standard when it comes both to local lending and in flexibility in working out foreclosures. The more they can lean on their banks to help people stay in their homes, the better for their already-devastated neighborhoods.

Boyce, Cahill, Alarcon, and leaders like them around the country know that their communities depend not just on banks, but on banks committed to providing important banking services to the communities they serve. Those are the banks they need, and those are the banks we all should support.