#8. The Public Banking Revolution

by Project Censored
Published: Updated:

In October 2019, California governor Gavin Newsom signed the Public Banking Act, authorizing city and county governments to create or sponsor public banks. As YES! Magazine reported, though establishing the charters for such banks will likely take several years, public banks like the Bank of North Dakota, which was established in 1919, provide a robust alternative to the “big for-profit banks that the government uses to invest public money into Wall Street, rather than local communities.” Public banks will provide “public agencies access to loans at interest rates much lower than they could find at private banks,” the Guardian reported. Run like nonprofits, public banks are not legally obligated to maximize profits, as private banks are; instead, public banks are mandated to serve their communities. As Ellen Brown, the founder of the Public Banking Institute, had previously reported for Common Dreams, “a growing public banking movement is picking up momentum across the U.S.” More than 25 public bank bills were “currently active, and dozens of groups are promoting the idea,” Brown wrote in April 2019. 

After California legislators enacted the state’s Public Banking Act, the cities of Los Angeles and San Francisco announced plans to establish public banks. In November 2019, New Jersey governor Phil Murphy established a task force to create a business and operations plan for how a public bank could help meet the capital needs of the state’s small businesses, nonprofits, students, and affordable housing projects.

From efforts to divest public employee pension funds from the fossil fuel industry and private prisons, to funding the proposed Green New Deal, and counteracting the massive, rapid shutdown of the economy caused by the COVID-19 pandemic, public banking has never seemed more relevant.

The year 2019 marked the 100th anniversary of the United States’s first publicly-owned state bank, the Bank of North Dakota (BND), which was established in response to a farmers’ revolt against out-of-state banks that were unfairly foreclosing on their farms. As YES! Magazine’s Ananya Garg reported, in 2018 the BND “recorded its 15th consecutive year of record profit,” with $159 million in income, $7 billion in assets, and an investment portfolio of $1.9 billion. As Ellen Brown told YES! Magazine, North Dakota was the only state that escaped the 2008 financial crisis: “It never went in the red” and it had the lowest unemployment and foreclosure rates at that time.

One aim of the Standing Rock movement—which in 2016 brought together Indigenous activists from across the nation to oppose the Dakota Access Pipeline—was public and personal divestment from the big bank funding the pipeline’s development, Wells Fargo. As Ananya Garg reported for YES! Magazine, at the time of the Standing Rock protests, “many individuals were able to switch their personal accounts to nonprofit credit unions.” But credit unions typically lack “the capacity to handle the large government accounts of cities and states.” Garg described how, in 2017, the Seattle City Council voted to divest its banking services from Wells Fargo, because of the bank’s ties to the Dakota Access Pipeline. But when Seattle officials could not find an alternative institution to process the city’s $3 billion in annual revenues, Seattle was forced to return to Wells Fargo for its banking. A public bank would have provided the necessary alternative, thus bolstering divestment efforts in Seattle and throughout the nation.

In July 2019, The Hill reported on how public banking could help fund the Green New Deal, the policy proposal to address climate change and environmental deterioration. Skeptics have argued that strapped federal and state governments lack the financial resources to take on the Green New Deal’s multi-trillion-dollar costs. However, as Eric Heath explained, state banks, such as the BND, “free the financial resources needed to fund vital investments in the planet’s future.” Public banks’ mission to serve the public interest could allow them “to extend financing to projects that other banks would not consider”—not because green investments are unprofitable, but because “their profits slowly accumulate and are widely shared across a community.” A September 2019 study, published by the Northeast-Midwest Institute, recommended the adoption of public banks by all Northeast and Midwestern states, not as “a panacea” but as one important move for “addressing critical investment gaps and realigning state resources with state interests.”

The COVID-19 pandemic’s extraordinary impact on the economy has led to somewhat wider discussion about the desirability of public banks. With the pandemic, news outlets such as The Hill and even News Corp’s MarketWatch are beginning to join pioneering outlets like YES! Magazine in covering public banking.

With the congressional bailout package including an initial disbursement of $349 billion in forgivable loans to small businesses through the Small Business Administration’s Paycheck Protection Program, the CEO of the Bank of North Dakota, Eric Hardmeyer, told YES! Magazine, “The Fed seems to be thinking of everything we were thinking about two or three weeks ago.”

Recalling how President Franklin D. Roosevelt used the Reconstruction Finance Corporation—“a special-purpose public bank”—not only to bail out private banks, but also to finance “massive public-works and social programs, which transformed America,” Timothy Knowles and Ameya Pawar advocated following Roosevelt’s example and launching “a network of national, state and local public banks to forge a 21st-century New Deal.”

“If cities had public banks, they would be much better equipped” to deal with budget shortfalls caused by the COVID-19 pandemic and to maintain the services and staff vital to cities’ economic recovery, Isaiah Poole and Rick Girling wrote in an editorial for The Hill. They went on to call for state and local political leaders to “use emergency powers to rapidly create public banks that can serve as key engines of a just and sustainable economic recovery.”

No major corporate media outlets appear to have devoted recent coverage to this important and timely topic.

Ellen Brown, “The Public Banking Revolution is upon Us,” Common Dreams, April 18, 2019, https://www.commondreams.org/views/2019/04/18/public-banking-revolution-upon-us.

Ananya Garg, “California Just Legalized Public Banks. Will the Rest of the Nation Follow Suit?” YES! Magazine, October 4, 2019, https://www.yesmagazine.org/economy/2019/10/04/california-public-banking-law.

Mario Koran, “California Just Legalized Public Banking, Setting the Stage for More Affordable Housing,” The Guardian, October 4, 2019, https://www.theguardian.com/us-news/2019/oct/03/california-governor-public-banking-law-ab857.

Eric Heath, “Public Banking Can Fund Green Investment,” The Hill, July 22, 2019, https://thehill.com/opinion/energy-environment/454075-public-banking-can-fund-green-investment.

Oscar Perry Abello, “To Keep the Economy Afloat, the Fed Turns to North Dakota,” YES! Magazine, April 29, 2020, https://www.yesmagazine.org/economy/2020/04/29/coronavirus-economy-public-banking/.

Student Researcher: Matthew Ascano (San Francisco State University)

Faculty Evaluator: Kenn Burrows (San Francisco State University)