It’s no small feat for a state treasurer to oust a bank due to its misdemeanours – especially a state with the clout of California. With about $2.3 trillion in GDP, its economy is larger than that of Australia, Spain or Canada. Were it a country, it would rank about 10th in the world in GDP terms.
It’s hard to believe that a state that size isn’t riddled with contracts with unpopular financial institutions but HSBC USA is an easy way to make a point. The amount of business HSBC USA will lose is very small – last November it received $25 million from the time deposit account at a 0.11% annual rate for six months, although it had been part of the programme since 2009. And being a foreign bank, Chiang’s move was less sensational than ousting a domestic bank – so perhaps easier than dropping Bank of America from say a cash management contract over its multitude of law suits.
But the bold move by Chiang to name the reason for dropping HSBC from the very large roster of small community banks that fund the programme was unusual and may point to how he intends to run the show in his new position. His intolerance for those who abuse the system (regardless of which side of the fence they sit) was apparent as state controller. He came down hard on the over-stretched retirement system and its inefficiencies and also led a movement against Arnold Schwarzenegger’s idea to cut state worker salaries back in 2008.
It’s no joke if Chiang starts to eye every bank contract by considering which is working within the law and which isn’t and is probably an even better deterrent than a regulator itself, given the state’s buying power. Other states may feel obligated to follow suit, particularly Texas, which deems itself a close rival to the Golden State.