“Banks should act like banks, not like political activists that are hostile to our state, our citizens, and our economy.” Those are the words of Ken Paxton, the attorney general for the State of Texas. If only Paxton would abide a variation of his advice for banks, whereby Republicans would act like Republicans, and not act in hostile fashion toward businesses that operate in the state of Texas. Alas, Paxton isn’t abiding the proposed variation.
Instead, he’s supported legislation in the Lone Star State dating back to 2021 that disallows governmental bodies in Texas from doing business with financial institutions seen as hostile toward or taking a stand against firearms or fossil fuels. Put another way, Paxton and other Texas pols are using swagger not their own to bully financial institutions operating within Texas to do the kind of business they think they should do.
Up front, politicians harassing businesses isn’t a huge surprise. That’s the way of things, or frequently the way of things among Democrats. Except that Paxton et al are yet again Republicans. Which lends the story a man-bites-dog quality. Republicans don’t do this, do they?
Imagine the reaction of Republican politicians and pundits alike if financial institutions operating in California, New York and Vermont were barred from financing municipal bonds within those states based on their perceived hostility toward green energy finance. Republicans would rightly criticize politicians in all three for dictating how and with whom banks do business, and worse, for the green alarmism underlying the treatment. With good reason. For the private sector to thrive, its actions can’t be dictated by governments.
To which some on the right will no doubt point out that Texas politicians are banning municipalities from doing business with banks that would help those municipalities grow their government footprints. It’s a fair point. In an ideal world government would do much less. Ok, but just the same it should be said that in an ideal world, the vast majority of governmental activity would take place locally. Seriously, isn’t that the point of conservatism, the localization of government so that those closest to politicians can watch them closely?
Which speaks to a growing problem with localized finance in Texas. For a long time, Citigroup was the biggest issuer of municipal bonds there. According to the Wall Street Journal, it’s since discontinued its muni business altogether after, among other things, being left out of most deals in Texas. Wells Fargo, Bank of America and J.P. Morgan have similarly had their wings clipped in Texas based on their presumed stance with regard to fossil fuels and firearms.
About this, some on the right will perhaps respond positively to the departure or operational shrinking of allegedly “woke” banks in Texas. If they’re not issuing bonds, then governments there won’t grow as fast. Not so fast. Money is money is money, after which the substitution effect in economics is very real. Legislation that has limited Texas governmental entities from doing business with Wells et al didn’t shutter the business as much as it shifted it to others in the financial space. In particular, smaller financial institutions have stepped in to do the financing formerly handled by some of the biggest U.S. banks.
The result of this shift has hardly been positive for Texas taxpayers. Yes, some of the biggest banks with frequently the most seasoning in munis in concert with the greatest heft with large institutions are no longer able to compete for municipal bond issuances. The result has been predictable, with the finance taking place at higher interest costs that will be passed onto Texas taxpayers known to disdain the long fingers of government.
In their efforts to fight off what they allege are “woke” business practices inside banks, Texas Republicans have taken to harassing financial institutions in a fashion long associated with “woke.” They’re even forcing banks eager to do business with the state to file letters with the political powers-that-be (Republicans) that they don’t “boycott energy companies.” Republicans don’t do this, do they…?
Republished from RealClear Markets
