City-owned bank is possible, but probably not necessary

The city of Minneapolis is looking into the "possibility" of launching a city-owned bank. But, of course, it's possible. So is opening a pet shop.

The reason there already isn't a Bank of Minneapolis is the same reason there isn't a City of Lakes Pet Shop. Affordable goldfish bowls can be found at privately held businesses without the city stepping in to provide them. The same is true for dry cleaning and just about anything else.

A place to open a checking account? Within walking distance of City Hall, I count four U.S. Bank branches, five more for Wells Fargo and branches for TCF, Bremer Bank, Associated Bank and others. Banks still may not be popular, but no one can say there aren't plenty of them that are open for business.

Supporters of a new banking arrangement are unhappy with Wells Fargo because the bank took a small piece of the 17-bank loan that's financing the Dakota Access Pipeline. This is the high-profile oil pipeline project that stalled in North Dakota as opposition to it intensified.

About the only thing that comes to mind that is similar to a city starting its own bank is an oddity of Minnesota life known as the "muni," a city-owned and operated liquor store.

The original idea many decades ago for setting up these stores owned by the government was to make it easier to get bootleggers out of the business. These "munis" exist now mostly for cities to buy down local government taxes by making money selling wine, beer and liquor. That strategy only works, of course, if the cities can make money at it. Last year, 34 Minnesota cities did not.

A municipal bank in Minneapolis is just an idea at this point. Last week, the City Council voted to have its finance staff come up with options for the city to do business with banks that had nothing to do with the fossil fuels industry that included the possibility of establishing a municipal bank.

It looks like a politically challenging assignment for the staff.

If staffers suggest launching a Minneapolis city bank that runs just like a regular bank, there's not much of an argument for why the city needs one. Yet there's no career upside in suggesting a banking operation that takes risks the regular banks won't.

The state of North Dakota has a bank, started nearly 100 years ago amid a burst of prairie populism. As best can be determined, no city has plunged into banking, although the idea has been explored elsewhere, including in Santa Fe, N.M. A consulting team there earlier this year decided it's feasible.

Much of the consultants' report really wasn't about the need for a city bank but about new ways for the city to handle its money. For example, the city now issues bonds that cost a lot in interest only to put the proceeds in the bank and earn next to nothing in interest.

Santa Fe's consultants also noted that the city takes a belt-and-suspenders approach to bank deposits. Similar practices are the rule in Minnesota, too, with any city's top priority making sure it doesn't lose the public's money.

That means requiring collateral to back the deposits the city makes into a commercial bank.

If banks have to keep Treasury bonds on the balance sheet to back up the city's deposits, that discourages lending those deposits to businesses eager to borrow money.

Most of their ideas could be implemented without starting a bank, Santa Fe's consultants pointed out. It's important to note that the consultants had no specific complaint about the commercial banks serving the city, including a Wells Fargo & Co. bank. The only time its name came up in this report was in a footnote about its outstanding rating under the Community Reinvestment Act.

For the champions of a new banking deal in Minneapolis, Wells Fargo is the problem.

It would be having a challenging year even without landing in the middle of a pipeline controversy.

It was just months ago that regulators sanctioned Wells for the creation of dummy accounts in customers' names, and litigation over that mess seems to extend as far as the eye can see.

On the other hand, Minneapolis has a long history with Wells Fargo, really a hometown company. The flagship of what became Norwest and then Wells Fargo, the Northwestern National Bank, got its start in Minneapolis in 1872.

Wells is now the second largest for-profit employer in the state, according to the Business Journal's latest ranking, with about 11,000 employees in Minneapolis.

No one could defend defrauding long-term customers with fake accounts, yet it's simply not fair to call this company a bad corporate citizen.

It may lend money to the oil and gas industry (so does U.S. Bancorp, by the way) but even in the area of environmental practices it has a fine record.

Last year, the U.S. Green Building Council named Wells tops in its industry for its efforts to cut down on waste and pollution in its facilities.

Wells just invested about $300 million in two 17-story office towers outside of the new U.S. Bank Stadium in downtown Minneapolis, built to LEED platinum standards.

Good Midwestern manners suggest the Minneapolis City Council should have waited at least a year after a huge local employer opened these new buildings before proposing to start competing with it for business.

lee.schafer@startribune.com • 612-673-4302