September 13, 2019

Banking on Guns n’ Drugs: Social Policy Meets Financial Services

This panel will explore the connection between banking relationships and policy views on social issues.

Today, banks and other financial institutions are at the center of controversies regarding whether they should take public positions on issues such as guns, cannabis, and climate change. While some argue that banks should serve all lawful businesses equally and avoid political activism, others take the position that banks should act with a “conscience” and avoid relationships with certain lawful industries. These concerns are amplified by the fact that depository institutions operate in a regulated environment with high barriers to entry, and receive significant government benefits such as a low cost of funds.

In the cannabis industry, although legal in some states, the prohibition under federal law makes large financial institutions unwilling to do business with marijuana-related businesses. Moreover, the major credit card networks – including Visa – prohibit transactions involving marijuana. This puts many businesses across the supply chain in the difficult position of relying on cash. In the absence of a legislative solution from Congress, federal and state agencies have taken a number of different approaches. The Obama administration issued the (since rescinded) Cole Memorandum directing federal prosecutors not to focus federal resources prosecuting individuals complying with state law in "jurisdictions that have enacted laws legalizing marijuana in some form and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale and possession of marijuana." However, this policy of non-enforcement did little to assuage the fears of large financial institutions, in part because the Memorandum could be withdrawn at any time, leaving such institutions vulnerable to prosecution or regulatory enforcement action.

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