Sunday, January 29, 2006

Hero of the day: BB&T

Eminent domain is one of worst violations of property rights to which the government can resort. Previously used to commandeer private land for public use, the Supreme Court ruled in June that cities can now redistribute private property to other private hands to "promote economic development." (Is it me, or does it seem that Justice Stevens is almost apologizing while delivering the lead opinion of the Court?)

There's plenty to say about eminent domain; plenty has already been said. I'll offer a Ludwig Von Mises line: Progress cannot be organized.

Thus, it is wonderfully refreshing to see that BB&T, a growing bank in the eastern half of the United States and the top financial institution by market share here in West Virginia, will not make loans to developers whose projects involve land taken from private citizens through eminent domain. The Washington Times has an article on it here. A number of other papers picked up the AP story as well.

Indeed, as BB&T's chief executive John Allison notes, "the dollar amount is insignificant." BB&T stands to lose less than one percent of its lending business, and there is no shortage of financiers for eminent domain-related projects. But the message is an important one-- companies can take a definitive stance against eminent domain. After all, while BB&T could often be privy to the sleight of government hand, it may well be them on the wrong end of the coercive sword the next time around.

BB&T's stance does raise the issue of corporate responsibility. In the interest of maximizing shareholder value, should BB&T be refusing loans based upon philosophical difference? It comes down to which effect is larger-- the negative impact from foregone profit opportunities on passed over loans, or the positive impact of more funds to loan from like-minded depositors. We know that the balance sheet impact is "insignificant," so even if the announcement generates no net inflow of loanable funds, the whole deal would be a wash.

Balance sheet implications aside, BB&T is free to run its company according to any moral standards it chooses. They have made their values clear; shareholders can react accordingly.

One bank's stance against eminent domain is valuable not in its immediate fiscal impact but in the message it sends. If other institutions chose to do the same, then the impact could be palpable. It would be a glorious market-based solution to a government-created problem.


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