A handful of cities have made headlines by vowing to pull their funds out of big banks whose lending or business practices they view as questionable, but recent developments in Seattle illustrate just how difficult moving public money can be.

Last year, the city council unanimously voted to end its banking relationship with the $1.9 trillion-asset Wells Fargo. City leaders cited the San Francisco bank’s investment in parts of the Dakota Access Pipeline as their main reason for wanting to cut ties.

Now a year later, the city has renewed its contract with Wells for another three years because it simply couldn’t find any other takers on such a short timeline. Only a handful of banks would be large enough to handle its business in the first place, and some might have been reluctant to enter the bidding out of concern that their own business dealings could come under scrutiny, said Glen Simecek, the president and CEO of the Washington Bankers Association.

“The challenge for the city is finding a financial partner that has the scale and capacity to meet the needs of a large city and at the same time is able to weather the political storm of a very active city council,” he said.

Some have suggested that a state-owned bank might be one solution to the city’s quandary, though any efforts to create a public bank would likely face stiff opposition from banks and credit unions.

At first glance, one might wonder why other banks did not leap at the chance to land the operating accounts of a major U.S. city. Seattle’s overnight deposits average between $10 million and $15 million, and winning that bidding process would have sent a signal that the bank was capable of handling other municipalities’ business.

Experts in municipal finance say it’s not that simple. Government banking is a complex business requiring its own expertise and infrastructure. Banks must put up collateral if they’re going to hold public deposits, and bidders must undergo intense scrutiny to win the account.

“You have to be very deliberate about getting into this. It is something that’s specialized because you have to understand the regulatory framework of your customer,” said Robin Russell, a partner at the Texas law firm Hunton Andrews Kurth.

“It’s a huge commitment of time and money to get into municipal banking, particularly at this level for a major U.S. city.”

To encourage smaller banks to bid, the city broke its needs out into five different functions: banking, merchant services, safekeeping, commercial card services, and coin-counting and safe services.

Bank of America, KeyBank, U.S. Bank, Wells Fargo and the payments processor Municipal Service Bureau, all bid for one or more of those jobs, but not a single bank bid for the depository relationship, according to the city’s finance department. In May, the city announced it was renewing the relationship with Wells. Their agreement expires in December 2021.

Wells has more state and local government deposits on its books than any other U.S. bank, but its share has been shrinking over the last couple of years as some entities have moved funds to other banks as a form of protest against Wells.

The cities of Philadelphia, Chicago and New Haven, Conn., and the states of Illinois and California have also recently shifted accounts out of Wells and into other banks, mostly in response to revelations that Wells employees had opened more than three million accounts without customers’ knowledge in order to meet sales goals.

At March 31, Wells had $35 billion of deposits from states political subdivisions on its balance sheet, down 11% from the same period last year and down nearly 17% from two years earlier, according to the Federal Deposit Insurance Corp.

While the city is keeping its money at Wells for another three years, lawmakers are now studying the idea of establishing a public bank to handle the city’s finances.

The public bank concept has become increasingly popular in recent years, and the newly established Territorial Bank of American Samoa has added fresh momentum to the movement. The only other public bank currently in existence in the U.S. is the Bank of North Dakota.

Activists and lawmakers have suggested public banks as the solution to a range of issues, from moving public funds out of big money-center banks to banking marijuana businesses.

Simecek of the Washington Bankers Association said that proponents promise a lot about what a public bank could do, but provide few details about how it would work. He’d like to know how a public bank would be capitalized, where it would source deposits, and how it would be insulated from political influence.

“Absent these details, it’s hard to take a stance one way or another,” he said.

Washington state bankers may also have special reason to be wary of how a public bank would handle municipal funds if that institution starts to struggle.

When the $446 million-asset Bank of Clark County in Vancouver failed in January of 2009, it had roughly $23 million in public deposits from four municipalities on its books and just $8 million in collateral to cover them, Deputy Treasurer Shad Pruitt said.

To make up the $15 million difference, the state’s public deposit commission ordered the 88 other Washington state banks that accepted public deposits at the time to come up with the funds to make the four municipalities whole.

Simecek wondered who would be responsible for making municipalities whole if a public bank were to fail.

"The real question lawmakers have to answer," he said, "is, ‘What happens when something goes wrong?’ ”

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