"The activities of the top big banks in fossil fuels and many other activities gives us limited, to no options regarding large, socially responsible banking options. We are truly stuck between Scylla and Charybdis until a public banking option is available."
Too Big? Public bank advocates want to see cities invest in Main Street, not Wall Street.
For Shelly Browning, it's been a long road from the Arab Spring to the Occupy Movement to Santa Rosa's support of a public banking bill now under consideration in Sacramento. Browning's a Santa Rosa small-business owner who's been active on the public banking front for years and says her inspiration to get Santa Rosa to divest from Wall Street banks begins in Cairo's Tahrir Square—and ends, perhaps, with an eventual "North Coast" public bank that would exist alongside Chase and other Wall Street banks.
She's been meeting with city leaders to raise awareness of the public banking bill. Browning was moved, she says, by the small-businessman who was arrested in Tunisia for failing to have a permit in 2011, and whose suicide sparked protests in Egypt that then gave rise to the Occupy moment in the United States. The economic forces that gave rise to Tahrir Square are the same that are driving the push for public banking: All roads lead to Wall Street, while Main Street gets crushed.
"Private banks' mandate is to serve the shareholders," says Browning, who runs a foreign language–translation service that does business with the state. "Public banks' mandate is to serve the public interest."
Assembly Bill 857, authored by Assemblymen David Chiu and Miguel Santiago, sets out to create a regulatory framework to allow California to license public banks that would give cities the option to stop doing business with the likes of JP Morgan Chase and Wells Fargo, and invest taxpayer money into local communities instead of Wall Street banks.
Chase and Wells Fargo have significant investments in the so-called "extreme fossil fuel" industry, which includes coal mining (Chase) and fracking.
A public banking law would make good on the California Public Banking Alliance's slogan of "Our Money. Our Values. Our Bank." That's the idea, anyway. The getting there is a different story, and, upon review of the city of Santa Rosa's investment portfolio, it's a story that's as much about investment as it is about divestment, given Santa Rosa's high-performing investments in foreign banks with big investments in extreme fossil fuels.
The public banking bill sailed through the state assembly with support from local assemblymen Jim Wood and Marc Levine, and now rests in two senate committees, awaiting a hearing and a vote. It's a feel-good bill of sorts and a pretty safe bet given that it doesn't require anyone to do anything. The bill merely opens the door to localities who'd like to pursue the option. It's gotten endorsements from a handful of cities around the state, including Oakland and Santa Cruz, and from the California State Democratic party as a whole. The California Banking Association and the state's community banks have come out in opposition, though Browning notes that a handful of community banks around the state have individually endorsed the bill. None of the North Bay's community banks, including Redwood Credit Union and Exchange Bank, have weighed in on the bill.
The bill is now parked in the Senate Government and Finance committee chaired by North Coast Sen. Mike McGuire. McGuire's office did not respond to requests for comment.
If signed into law, the bill would allow municipalities to apply for a banking charter from the California Department of Business Oversight. The bill encourages those entities to partner with credit unions to extend credit to communities and their residents, and, says Browning, provides the opportunity to build a socially and environmentally responsible banking system, "by enabling cities and counties in California to recapture public dollars and reinvest in their local communities." Residents would rely on community banks for their personal banking needs, and the local public bank could, for example, offer residents stock options for local schools, instead of making investments in the booming domestic dirty energy economy.
Browning envisions a North Coast bank that could serve Sonoma, Mendocino and Humboldt counties. Santa Rosa, as the largest city in the tri-county region, would be the key to make this dream a reality. As a practical matter—and based on the North Dakota public bank that's held as a model—the well-versed Browning explains that there's a scalability issue with public banks; you need a sufficient tax base to generate the revenue needed to support a commercial lending institution in the public domain. North Dakota's 100-year-old state-run public bank is a success in a state with a population of 750,000. The aggregate population of Sonoma, Mendocino and Humboldt counties is right around that same number. It's a heady idea that's taken hold of the public imagination around the state. Imagine, says, Browning, being able to buy stock options in local schools from a municipal or regional bank—instead of endless rounds of higher taxes levied on residents to pay for school services.
But even as the Santa Rosa City Council voted to support the bill this week, the focus on divestment from the fossil fuel industry raises questions about the city's investment strategy. Since the wildfires, the city has made big investments with banks that invest in fossil fuels—the same fuels that are linked to the rise of climate change-fanned fires. The city, however, says one has nothing to do with the other.
According to city documents, Santa Rosa has made more than a dozen investments in foreign-owned banks that invest in the unclean end of the fossil fuel industry. And, it banks with the single largest financier of fossil fuel industries, JP Morgan Chase, according to a comprehensive study on fossil fuel investments by domestic and foreign banks.
According to its May 2019 investment report, 13 investments in banks such as UBS, Credit Suisse and the Bank of Montreal total $43 million from interest-bearing securities (certificates of deposit) that are earning between 2.6 and 3.9 in interest. Of the 13 investments, 11 were made after the 2017 wildfires that punched a $20 million hole in Santa Rosa's $122 million operating budget. The post-fire investments range from between $3.25 million with USB and $4.2 million with the Royal Bank of Canada, both of which are detailed in a new study, Banking on Climate Change: Fossil Fuel Report Card 2019, for their poor showing in the extreme-fossil-fuels department. As of last month the investments had accrued nearly $480,000 in interest. Despite the timing of the investments—most took place through 2018—the city says they had nothing to do with fiscal fallout from the 2017 wildfires.
Banking on Climate Change is an annual analysis undertaken by the Rainforest Action Network that details domestic and foreign banks' investments in various fossil fuel industries and grades them on their climate change awareness as reflected in those investments. Most of the 13 foreign-owned banks that Santa Rosa has invested taxpayer money in received poor grades in the report because of their fossil fuel investments. Browning notes the benefits brought to bear by the nation's only public bank, the Bank of North Dakota, which came into the public spotlight during the Standing Rock demonstrations that peaked at the end of 2016.
"There is an alternative," says Browning, and time is running out to adopt it. "We've got 12 years to turn it all around," she adds, a reference to the accepted wisdom of our time that says climate change impacts will really start to accrue in about a decades' time. "The time is now to turn it around."
Banking on Climate Change reports that Chase is the nation's leading financier of the nation's booming domestic energy industry, with $64 billion in total investments. Wells Fargo is not far behind at $61.4 billion. A review of the city's investments reveals that they've gone into business with some of the least environmentally conscious foreign banks in the world after the 2017 wildfires. Except for one bank.
The Nordea File
There's one bank that Santa Rosa does business with that doesn't appear anywhere in the extreme fossil fuels report, but that does appear in numerous investigative reports that tell a different sort of dirty-business story—raising another set of questions about the city's investment strategy.
In December 2016, executives from Nordea visited Standing Rock and stood in solidarity with the Sioux and their blockade of the pipeline. Before reporters, the company warned is fund managers to divest from any company associated with the pipeline. The climate-change divestment movement took note. The environmentalist-journalists at Ecowatch reported that "Nordea had put companies behind DAPL on watch," and in early 2018, Nordea made good on its word and banned its fund managers from investing in firms tied to the Dakota pipeline.
Stateside news reports on Nordea's altruism made no mention of the banks' connections to the Panama Papers, or to money laundering allegations associated with the bank. For those reports, you'd have to turn to the Scandanvanian-based Yle News and the Organized Crime and Corruption Reporting Project, whose detailed reports on Nordea read like they are straight out of a footnote to the Steele Dossier, with allusions to Russian oligarchs, money laundering and possible organized crime.
Just this month Yle News updated its previous reports on money laundering allegations with a report on a data dump that revealed "a secret network of shell companies that have funneled billions of euros through the global banking system," using shell accounts in Nordea banks. The bank has denied any wrongdoing.
Did Nordea's pro-Sioux posture influence the city's decision to invest $5.8 million with the bank that same month? Santa Rosa communications director Adriane Mertens says it did not.
The Nordea CD was scheduled to mature on Nov. 30 2018, and paid a 1.72 percent interest rate on the investment. According to city documents, at the time of the October 2017 wildfires, the Nordea investment was losing money.
The investment reports indicates that in February 2018, the city sold $3.25 million of its poorly performing Nordea security back to Nordea Bank of Finland, and then reinvested the $3.25 million in Nordea Bank AB NY, at a yield of 2.72 percent. That note is due to mature in February 2020. The new investment left $2.25 million of the initial 2016 investment with Nordea Bank Finland at the original, 1.72 rate of accrual. By April 2018, both investments were earning a positive yield.
Investments in these negotiable CDs are managed by the city's outside investment advisor, Public Finance Management (PFM), says Mertens. "The inclusion of these securities is consistent with the objective of managing a diversified portfolio," she adds, and the city's been investing in the negotiable CDs "since at least 2012."
Santa Rosa city council member Julie Combs weighed in on the city's investments as Santa Rosa was expected to pass a resolution in support of AB 857. "We have established a socially responsible investing policy several years ago under a different council," she says. "At the time I believed the policy was not clear enough and it has a loophole that is not made clear," she adds, without identifying the loophole. The city council approved the new rules even after Combs tried to get an investment criteria added to the rules that would require the investments be "socially beneficial." That effort failed.
Combs is supportive of the concept of a regional public bank and supports AB 857, but recognizes the challenges, adding that she's "aware of trying to ensure we bank locally as much as possible, but many of our local banks and credit unions are not able to work with the large sums because they must have more cash on hand than they do. They are insufficiently capitalized."
The city defends its investment in banks with ties to the extreme fossil fuel made in its name by Public Finance Management, and says the timing of the investments had nothing to do with the 2017 wildfires, Nordea's posture around DAPL, or any other factor other than the fiscal health of the city. "The events and circumstances referenced in [your questions] caused no change in investment strategy," says Mertens. "All the negotiable certificate of deposits in the portfolio meet the investment advisors credit criteria and the inclusion in the portfolio is consistent with the city's investment objectives. These types of securities are widely held by public agencies with objectives similar to Santa Rosa."
The investments underscore the difficulties inherent in divesting from the fossil-fuel industry as the public bank moment in California gains steam in Sacramento, San Jose, Oakland and at Santa Rosa City Hall. Combs notes that "the activities of the top big banks in fossil fuels and many other activities gives us limited, to no options regarding large, socially responsible banking options. We are truly stuck between Scylla and Charybdis until a public banking option is available."
For public banking advocates like Alison Malisa, it's time to bring those legendary sea monsters to heel. She's a Sebastopol teacher with a background in economics who, like Browning, was moved by the domestic activism of Occupy that was itself inspired in part by the Arab Spring. There's a triple bottom line at play, she says—people, profits and the planet. She repeats the public banking mantra—Our money, our values, our bank—and says that whether it's the city or Chase bank, fossil fuel investments present a stark choice during stark times: "It's either a vicious or virtuous cycle," she says.