Lichens, laws, and ledgers
What nature can teach us about the relationship between governments and financial institutions
Whenever the government gets industrial giants around a table to accomplish something big, we should be suspicious. In response to president Donald Trump’s fentanyl theatre, Canada’s new fentanyl czar enlisted the help of Canada’s big banks. David McGuinty, Canada’s public safety minister, told reporters at a press conference that big banks will help the government “follow the money” and “cut off the proceeds for organized crime.” If you’re not at the table, as the old adage goes, then you’re on the menu.
Fentanyl is a scourge, and it’s unfortunate that Canada is the snow-washing capital of the world, but even judge Austin Cullen—of the famed Cullen Commission on money laundering—warned that such partnerships between law enforcement and banks can “undermine established constitutional rights.” It’s tempting for law enforcement to get banks to do what law enforcement cannot: unreasonable searches and seizures of assets, from which the Canadian Charter of Rights and Freedoms protects us.
Nonetheless, there is a graver reason to be suspicious—and a little known relationship in nature shows us why.
A lichen is a marriage between fungi and algae. Some lichens look like tar smeared across coastline rocks, while others like clumps of pale-green floss dangling from trees in frosty forests. These marriages, despite how different they look, work for the same reason. From algae, fungi receive energy they can’t photosynthesize on their own. From fungi, algae get minerals and shelter. When the world is at its harshest, neither partner can survive alone.
Bank-government partnerships are like lichen, as banks and governments depend on each other for their own survival. Centuries ago, when Europe was at war with itself and the “New World” was being colonized, the British had opponents to conquer and cross-Atlantic trade routes to protect. War and economic expansion were expensive, but a king could only tax his people so much before the people taxed his head. A more symbiotic solution was for the king to charter a lender, which would reliably fund his exploits in exchange for monopoly privileges. So the Bank of England received a charter in 1694.
Our big banks and the federal government have this special relationship even today, beyond the most recently announced partnership to choke off the supply of fentanyl crossing the Canada-U.S. border. When the Liberal government needed a fiscal boost at the end of the pandemic, it levied a special tax on big banks. During the “freedom convoy” protests, it directed them to freeze the bank accounts of protestors. To impress consumer groups, it got banks to lower their fees for students, seniors, and others in need. For small businesses, it got big banks and payment networks to cut credit card swipe fees. The Liberal government has also been using banks to support its climate and green-transition agenda.
But symbiosis only works if both partners benefit. What, then, have Canada’s biggest banks gotten in return?
The scariest thing is that it’s not obvious.
In Canada’s earliest days, it wasn’t hard to surmise the bargain. The Bank of Upper Canada, which got its charter in 1821, was Upper Canada’s banker—and the directors of the bank, many of whom were politicians, used public policy to prevent other banks from being chartered and challenging their monopoly. It was a simpler time: the government got a fiscal agent, and the banks’ shareholders got to pad their pockets. Today the bargain needs to be hazier. Otherwise it’s ammunition for reformers, like those who undid the Bank of Upper Canada’s monopoly not long after it was established.
The bargain today is much harder to surmise. A few years ago, a big bank CEO told Chrystia Freeland the government shouldn’t level the playing field with open banking, a public policy initiative to boost competition in financial services. “I very much agree with you about not seeking to level the playing field here on open banking,” responded Freeland, then the minister of finance, in what was believed to be an off-the-record conversation. The Liberal government has made several promises to bring open banking to Canada, but failed to make good on most of them. Is it any wonder why with such conversations going on behind closed doors?
Maybe banks have blocked decisions that would make them work harder for their customers, while hijacking programs that give them a free ride to more revenue.
It’s plausible that banks get their fair share of privileges from this symbiotic partnership they’re in. Long-held privileges include the right to create money out of thin air with your deposits, and having the mortgages on their books guaranteed by the federal government. More recent benefits include being the delivery vehicle for the Canada Emergency Business Account program, in which the feds provided the credit, and the banks distributed the credit to struggling businesses. Administering CEBA loans boosted their fee-based income without costing them any credit risk. Even more recently, when RBC moved to acquire HSBC’s Canadian operations, then-minister Freeland put conditions on the acquisition, rather than block it (as some called on the government to do). Was she more merciful than she otherwise would have been?
Maybe. Maybe not.
The alternative—banks not getting their fair share of privileges, or taking more than they give back—is just as scary. Governments that go too far in exploiting their financial sectors scare off capital, depriving citizens of economic opportunity, and themselves of fiscal capacity, like Mexico did in the 1980s. Conversely, when banks get too good at persuading governments to guarantee their balance sheets, as US banks did before the subprime mortgage crisis, they privatize their gains and socialize their losses.
When one symbiotic partner becomes parasitic on the other, symbiosis can come undone. And once undone, it’s hard to put back together again.
Scientists have tried to cultivate lichen in laboratories. The earliest attempts failed. Later attempts showed more promise, but they also showed how little we know about the systems we think we can design. Lichen isn’t just a marriage between fungi and algae. It’s the accumulated wisdom of millions of years of courtship. Neither fungi nor algae will ask for the other’s hand on any old petri dish. They need enough light. The temperature and humidity need to be just right. Many of them need a supporting cast of bacteria and yeast, as scientists have recently discovered, to make the marriage work. And then they need time: a lichen is a slow-former.
Symbiosis between governments and banks isn’t that different. It, too, needed time to emerge—hundreds of years to get us where we are today. It needed a backdrop of war and economic expansion to spark the romance. It also needed a supporting cast of investors, merchants, and consumers to make the symbiosis work. Now we’re all entangled in this web of giving and taking, always inching toward some elusive equilibrium that varies with the context within which we find ourselves.
There is a temptation for lawmakers to meddle like scientists in laboratories, but to advance their political agenda, rather than deepening their understanding. Indulging in such temptation neglects the lesson of history and the natural world around us: this symbiosis works best when it evolves to benefit all partners—banks, governments, and the rest of society alike—not when it’s being seized by Bay Street executives to meet their narrow needs, or by prime ministers to meet their own.
Rather than continuing a vicious cycle of selfish bargaining, which may one day break the delicate symbiosis we depend on for everything from mortgages to international diplomacy, our lawmakers should pause and reflect: at what point do we stop to keep our delicate little lichen from coming undone?