Banks as social police

Vito Racanelli of Barron’s highlights problems linked to banks’ entry into debates over hot-button political issues.

What is the role of banks today? Typically, they collect deposits, keep your cash safe, and lend money prudently for investment and economic growth. Are they also somehow obligated, by their outsize and heavily regulated role in the economy, to serve a broader social purpose?

Some people don’t think so. In recent weeks, groups supporting the Second Amendment, which bestows the right to keep and bear arms, and some Republican senators have sharply criticized two big banks that made moves that could restrict their business involvement in gun sales. …

… Banks don’t operate in a truly free market and are empowered by the government, through federally insured deposits and charters that limit competition, to provide financial services. Consequently, it’s no surprise that some politicians who favor relatively unfettered gun rights are up in arms. Will the banks now withhold or curb services to other legal businesses that management doesn’t approve of—say, newspapers with unpopular editorial views, the coal or nuclear industry, or abortion clinics?—asks Brian Knight, a senior research fellow at the George Mason University Mercatus Center.

That’s a legitimate concern. Yet the solution isn’t more government oversight of management decisions. There is already too much, and it is likely to be counterproductive. Open that regulatory door wider, and politicians will surely push their way further into board meetings.

Instead, it’s up to the banks’ shareholders to decide whether management’s policies are best for the long-term health of the bank and their investment. The bank’s clients, too, might have an indirect say. It’s possible some customers will applaud these moves, but others might well take their business elsewhere.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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