2019 marked a turning point in a growing public banking movement that has been picking up momentum across the US. Progress included passage of the Public Banking Act (AB-857) in California, the establishment of a state public bank in New Jersey, and the opening of the Territorial Bank of American Somoa. After California legislators enacted the state’s Public Banking Act, San Francisco and Los Angeles announced plans to establish public banks. And there are now more than 25 public bank bills under consideration in other states. Why public banking? Why now?
Since the banking crisis of 2008, the public has had concerns about commercial banks and the nature of banking. Each year billions of dollars of public funds are deposited in private (Wall Street) banks. It’s not the government that keeps our money, it’s private banks. Typically, these public funds are not invested in local communities or states. These funds end up in high return investments like the fossil fuel industry, pipelines, private prisons, etc. A growing divestment movement is now focused on divesting government programs, such as public employee pension funds, for example, from big banks. The question then is where to put them. Economic justice activists say the answer is public banking.
Public banks are public utilities, owned by the people with a mission to serve the public good and community values. According to supporters, public banking can offer low interest loans for students and public agencies, and capital for small businesses and nonprofits. If so, public banking would allow cities, counties, or states to get more for their limited funds, and effectively manage their money to provide more services to their citizens. i.e. affordable housing, homeless services, education, renewable energy, community healthcare facilities, public transit, etc.
2019 was also the 100th anniversary of America’s first publicly-owned state bank, the Bank of North Dakota (BND)—a living legacy that makes below-market loans for local communities and businesses while turning a profit for the state. The Bank of North Dakota was founded in response to a farmers’ revolt against out-of-state banks that were unfairly foreclosing on their farms. Since then the BND has evolved into a $7.4 billion bank that is reported to be even more profitable than JPMorgan Chase and Goldman Sachs, although its mandate is not actually to generate profits but to serve local communities. Along with hundreds of public banks worldwide, BND has demonstrated what can be done by cutting out private shareholders and middlemen and mobilizing public revenues to serve the public. With BND’s leadership, North Dakota was the only state in the US to escape the 2008 credit crisis, while also having the lowest unemployment rate and foreclosure rate in the country. BND stands as a model of success.
The public banking revolution could go even further by exploring the rebirth of Post Office banking, a service fulfilled in the past by US post offices. Profit-chasing banks tend to abandon low-income and rural neighborhoods, leaving one in five people without banking services, or “underbanked.” This often forces them to rely on predatory financial services such as pawn shops, check cashing services, and payday lenders. As a result, underbanked households spend almost ten percent of their income just to access their own money. Local post office banking could easily change this.
In July 2019, The Hill published an article that reported 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, Eric Heath wrote that state banks, such as the Bank of North Dakota, “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.”
Corporate media coverage of this topic has been limited to the announcement of separate news items instead of reporting on this unfolding revolution in local banking, and the forces driving it.
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.
David Levinsky, “Murphy Creates Task Force to Research Launch of NJ Public Bank,” Burlington Country Times, November 13, 2019, https://www.burlingtoncountytimes.com/news/20191113/murphy-creates-task-force-to-research-launch-of-nj-public-bank.
Fili Sagapolutele, “Territorial Bank Set to Take over Former Bank of Hawaii Location in Tafuna,” Samoa News, August 20, 2019, https://www.samoanews.com/local-news/territorial-bank-set-take-over-former-boh-location-tafuna.
Christine Kilpatrick, “San Francisco Sets Timeline for Launching Public Bank—the First in California,” San Francisco Business Times, November 13, 2019, https://www.bizjournals.com/sanfrancisco/news/2019/11/13/san-francisco-sets-timeline-for-launching-public.html.
Eric Heinz, “LA City Council President to Propose City’s First Public Bank,” Los Angeles Daily News, October 7, 2019, https://www.dailynews.com/2019/10/07/la-city-council-president-to-propose-citys-first-public-bank.
Will Peischel, “How a Brief Socialist Takeover in North Dakota Gave Residents a Public Bank,” Vox, October 1, 2019, https://www.vox.com/the-highlight/2019/9/24/20872558/california-north-dakota-public-bank.
“Why Post Office Banks Need to Make a Comeback in the US,” Fast Company, Oct. 18, 2019, www.fastcompany.com/90416889/the-answer-to-helping-the-unbanked-exists-on-every-main-street-the-post-office.
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.
Student Researcher: Matthew Ascano (San Francisco State University)
Faculty Evaluator: Kenn Burrows (San Francisco State University)