On March 12, federal bank regulators made a decision to prevent a possible systemic financial crisis by bailing out wealthy tech depositors at Silicon Valley Banks and signature banks. The decision was made despite the fact that it flouted normal banking rules. The very next day, the Biden administration violated its election promises by approving the Willow Project, one of the largest oil and gas developments in U.S. history on federal land. This contrast has made environmental activists uncomfortable since they have been pushing for economic protection against climate-related risks.
They argue that investing in oil and gas projects may soon not be viable for economic, legal, and practical reasons. As a result, if investors decide this is a waste, they will panic, and the panic may target banks larger than Silicon Valley Banks. This could trigger a global financial collapse. Recent investigations into the Fed’s own failures have shown that even smaller banks can cause panic. Therefore, it’s important that financial firms diversify their portfolios and pay more when investing in dirty energy.
Climate advocates argue that there is still time to prevent a full-blown financial crisis. The regulators should force financial firms to keep emergency funds on hand or to refuse to finance fossil fuels. However, there is a simpler way to protect the economy from bank failures: nationalize consumer banks.
Regulators anticipate the greatest possible future financial risks, determine which companies are large and interconnected enough to disrupt the global economy, and hypothesize how they will respond to the predicted risks. They then make recommendations to banks with regard to the scenario they’ve created. However, this presents a lot of speculation, and no one can predict changes in the economy with certainty.
Most people use banks primarily to store money and access payment systems like debit cards and payroll. They are not inherently interested in bank investments. Governments could provide a risk-free way to store and pay money. Private banks that join the Federal Reserve get fully insured accounts and access to the Fed’s ultra-fast payment system.
If there was a law to give the public what we already give to private banks, most people’s problems with the financial system would be solved. This change would reduce the interconnectivity of the financial sector, making it more prone to system-wide crashes. Regulators could make banks fail more easily. The financial lobby will be much weaker in Washington, and it exposes the absurdity of entrusting all of our economic planning to commercial financiers.
The private financial sector is already trying to give itself a climate-conscious sheen through environmental, social, and governance (ESG) investments. However, nationalizing consumer banks will make it easier to fund fossil fuels. It would also make the financial industry less politically powerful, allowing for democratic discussion about which industries should be developed, which should be reduced, and how they should be structured.