Muncipally-Owned Public Banks

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Description

By Jimmy Tobias

"Across the country, community activists, mayors, city council members, and more are waking up to the power and the promise of public banks. Such banks are established and controlled by cities or states, rather than private interests. They collect deposits from government entities—from school districts, from city tax receipts, from state infrastructure funds—and use that money to issue loans and support public priorities. They are led by independent professionals but accountable to elected officials. Public banks are a way, supporters say, to build local wealth and resist the market’s predatory predilections. They are a way to end municipal reliance on Wall Street institutions, with their high fees, their scandal-ridden track records, and their vile investments in private prisons and pipelines. They are a way, at long last, to manage money in the public interest.

Since 2011, advocates from a national nonprofit called the Public Banking Institute have traveled across the country, preaching the practical benefits of public banking and recruiting or training activists and organizers to take up the cause. They have found willing and enthusiastic supporters from coast to coast. The movement has been embraced in Philadelphia, where the city council held hearings on the idea last year. It’s been championed in Seattle and San Francisco, where a number of city supervisors are calling for a task force to study public banking. It’s taken root in Santa Fe, with backing from the mayor, and in Oregon, Vermont, and even New Jersey, where a leading Democratic gubernatorial candidate, Phil Murphy, has proclaimed his desire to create a state bank right next door to the financial capital of the world." (https://www.thenation.com/article/what-if-people-owned-the-banks-instead-of-wall-street/)


Example

Oakland, California, USA

By Jimmy Tobias

“I believe this is the wave of the future,” says Craig Brandt, who is now a leader of Friends of the Public Bank of Oakland, the group advocating for public banking in the city. “And I hope Oakland will be the first one out the door to do it.”

The city is well on its way. Last November, the Oakland City Council passed a resolution announcing their intention to explore the creation of a public bank. In February, elected officials and community activists gathered at City Hall for a packed forum on the benefits of a public bank, including the possibility that it could hold deposits from the state’s multibillion-dollar cannabis industry and help promote affordable-housing development. This summer, meanwhile, the council will likely vote on whether to dedicate as much as $100,000 to fund a feasibility study that will explore the technical requirements of creating an independent publicly owned financial institution in Oakland.

“The fundamental point is to have a bank whose purpose is to be responsive to community needs,” says Oakland Councilmember Rebecca Kaplan, a key backer of the local public-banking movement. “This would allow us to save money compared to traditional corporate bank rates, and it would allow us to fund vital projects based on community need rather than having those decisions driven by the profit motive.” She says the City is also interested in the possibility of creating a regional public bank by partnering with neighboring cities like Berkeley and Richmond, California.

“The more folks on board,” she said, “the stronger the support for taking this kind of action.” (https://www.thenation.com/article/what-if-people-owned-the-banks-instead-of-wall-street/)


Santa Fe, New Mexico, USA

By Jimmy Tobias

"One of the other places where this radical alternative has taken root, surpassing even Bay Area efforts, is Santa Fe, New Mexico. The movement in that city of 67,000 started gathering momentum in 2014, when a small but determined group called Banking on New Mexico held a symposium to promote the idea. More then three hundred people showed up, including the newly elected progressive mayor, Javier Gonzales.

“A group of advocates met with me early in my term,” says Gonzales. “I was really intrigued and excited about an opportunity to explore a different way to have fiscal relationships.”

In early 2015, Santa Fe commissioned a private consultant, in partnership with New Mexico State University, to conduct a feasibility study into public banking. A year later, in January 2016, the report came back and the news was positive: By funding the city’s capital needs and improving municipal cash management, among other functions, a public bank could generate more than $24 million in savings and earnings for Santa Fe over a seven-year period. And such a bank would be particularly effective, says Katie Updike, the consultant who authored the study, if it serviced the city as well as the surrounding county and school district.

“In the case of Santa Fe, where I saw the biggest benefit is if the city, county, and school district worked together,” she says. “When you begin to step out of the jurisdiction of the city and look at the county and the school district too, which are separate entities, all their cash could be pooled and used to fund projects and then it began to get more interesting.”

In late April of this year, based on the results of the feasibility study, Santa Fe’s city council announced that it was creating a nine-person task force to spend six months digging deeper into the legal and financial prerequisites of establishing a public bank. The task force will focus, above all, on developing a governance structure for the bank.

“Governance is a concern for a lot of people,” says Elaine Sullivan, a leader of Banking on New Mexico and a passionate promoter of the cause. “People don’t want the bank run by political officials, and it wouldn’t be. There would be a clear distinction between the public bank, which would be managed by public bankers, and the city of Santa Fe.” (https://www.thenation.com/article/what-if-people-owned-the-banks-instead-of-wall-street/)


History

 By Jimmy Tobias

"Public banks have a long, though subterranean, history in the United States that stretches back to the days of Benjamin Franklin, who helped establish a public land bank in Pennsylvania to provide cheap loans to small farmers. Even today many public institutions, from the Federal Deposit Insurance Corporation to the Small Business Administration to the Federal Housing administration, are essential components of America’s banking system. But there’s only one true public bank in this country and it’s not in Washington or New York or some coastal liberal enclave. It’s in North Dakota, where it has survived and thrived for nearly a century.

First established in 1919 by populist state legislators eager to extend credit to cash-strapped farmers and ranchers, the state-owned Bank of North Dakota (BND) is now a modern and multifaceted financial juggernaut. The bank holds deposits from government agencies. It provides low-cost credit for school construction and municipal infrastructure projects. It refinances student debt at reduced interest rates. Rather than opening branches of its own, it generously partners with local community banks and credit unions tos issue small-business, home, and agricultural loans. Best of all, it funnels its profits back into state coffers whenever North Dakota has budget troubles. The bank is, in other words, essentially socialist.

It’s also a steady source of profit. Last year, according to its annual report, the Bank of North Dakota saw its 13th consecutive year of record profits, taking in more than $136 million in income while growing its loan portfolio by $449 million dollars. And, unlike some of its counterparts, the bank accomplished all that without opening fraudulent accounts or manipulating interest rates or otherwise scamming consumers." (https://www.thenation.com/article/what-if-people-owned-the-banks-instead-of-wall-street/)

Discussion

By Jimmy Tobias

"The bank’s success—its long track-record of supporting and stabilizing local economies, sharing the wealth, and minting a profit to boot—has turned it into an intriguing model for cities around the country that are keen to find creative fixes for their ongoing financial woes.

“Public banking is finding its time now because municipal executives have very poor choices,” says Walt McRee, the chair of the Public Banking Institute. “As things deteriorate and have to be fixed, as population grows but jobs decline, as tax receipts dry up, cities can either can cut services, raise taxes, fire people, or privatize things. But those trends are enormously destructive.”

“The prospect of a public bank does something entirely different,” he continues. “It gives a community the ability to liquefy its own assets and lend itself money, to do things it needs to do with money it already has, to hold on to people’s capital instead of sending it to Wall Street.”

Consider municipal bonds. Cities regularly go to the municipal-bond market to raise money for big projects, from school construction to bridge building to park development and more. These bonds, however, come with overhead costs in the form of fees that normally hover around 1 percent, but can climb as high as 10 percent, of the bond’s principal value. A recent report by the University of California Berkeley’s Haas Institute estimates that cities and other public entities pay upward of $4 billion a year in such fees, an enormous sum that serves only to fatten the purses of multinational banks, legal firms, and others involved in the bond-issuance business. A public bank could help reduce these costs and free up funds by enabling a city to deposit its money in a public entity instead of a profit-centric institution like Wells Fargo or JPMorgan Chase. The city would then be able to borrow money from its own bank rather than turning to the Wall Street bond market, with its overhead costs and market-set interest rates. It could, in short, introduce a radical alternative into the realm of municipal finance." (https://www.thenation.com/article/what-if-people-owned-the-banks-instead-of-wall-street/)