Tag Archives: Public Banks

The Public Bank Option – Safer, Local and Half the Cost

Phil Murphy, a former banker with a double-digit lead in New Jersey’s race for governor, has made a state-owned bank a centerpiece of his platform. If he wins on November 7, the nation’s second state-owned bank in a century could follow.   

A UK study published on October 27, 2017 reported that the majority of politicians do not know where money comes from. According to City A.M. (London) :

More than three-quarters of the MPs surveyed incorrectly believed that only the government has the ability to create new money. . . .

The Bank of England has previously intervened to point out that most money in the UK begins as a bank loan. In a 2014 article the Bank pointed out that “whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

The Bank of England researchers said that 97% of the UK money supply is created in this way. In the US, the figure is about 95%. City A.M. quoted Fran Boait, executive director of the advocacy group Positive Money, who observed:

“Despite their confidence in telling the public that there is ‘no magic money tree’ to pay for vital services, politicians themselves are shockingly ignorant of where money actually comes from.

“There is in fact a ‘magic money tree’, but it’s in the hands of commercial banks, such as Barclays, HSBC and RBS, who create money whenever they make loans.”

For those few politicians who are aware of the banks’ magic money tree, the axiom that the people should own the banks – or at least some of them – is a no-brainer. One of these rare politicians is Phil Murphy, who has a double-digit lead in New Jersey’s race for governor. Formerly a Wall Street banker himself, Murphy knows how banking works. That helps explain why he has boldly made a state-owned bank a centerpiece of his platform. He maintains that New Jersey’s billions in tax dollars should be kept in the state’s own bank, where it can leverage its capital to fund local infrastructure, small businesses, affordable housing, student loans, and other state needs. New Jersey voters go to the polls on November 7.

That means New Jersey could soon have the second publicly-owned depository bank in the country, following the very successful century-old Bank of North Dakota (BND). Other likely contenders among about twenty public banking initiatives now underway include Washington State, which has approved a feasibility study for a state bank; and the cities of Santa Fe in New Mexico and Los Angeles and Oakland in California, which are exploring the feasibility of their own city-owned banks.

A Bank Is Not Simply an Intermediary

An article in City Watch LA critical of the idea of a city-owned bank observed that Los Angeles formerly had a bank that failed, closing its doors in 2003 due to insolvency. The argument illustrates the confusion over what a bank is and what it can do for the local government and local communities. The Los Angeles Community Development Bank was not a bank. It was a loan fund, and it was designed to fail. It was not chartered to take deposits or to create deposits as loans, and it was only allowed to lend to businesses that had been turned down by other banks; in other words, they were bad credit risks.

With a loan fund, a dollar invested is a dollar lent, which must return to the bank before it can be lent again. By contrast, as the Bank of England acknowledged in its 2014 paper, “banks do not act simply as intermediaries, lending out deposits that savers place with them.” A chartered depository bank can turn one dollar of capital into ten dollars in bank credit, something it does simply by creating a deposit in the account of the borrower. If the bank’s books don’t balance at the end of the day, it borrows very cheaply from other banks, the Federal Home Loan Banks, or the repo market. It borrows at bankers’ rates rather than retail rates, and that is one of the many perks that a publicly-owned bank can recapture for local governments. Borrowing from banks rather than the bond market actually expands the circulating money supply, stimulating the local economy.

Compelling Precedents

Public sector banks, while rare in the US, are common in other countries; and recent studies have shown that they are actually more profitable, safer, less corrupt, and more accountable overall than private banks.

This is particularly true of the Bank of North Dakota, currently the only publicly-owned depository bank in the US. According to the Wall Street Journal, it is more profitable than Goldman Sachs or JPMorgan Chase. The BND is risk-averse, lends conservatively, does not gamble in derivatives or put deposits at risk. It is able to lend at lower than market rates because its costs are very low.

The BND holds all of its home state’s revenues as deposits by law, acting as a sort of “mini-Fed” for North Dakota. It has seen record profits for almost 15 years. It continued to report record profits after two years of oil bust in the state, showing that it is highly profitable on its own merits because of its business model. It does not pay bonuses, fees, or commissions; has no high paid executives; does not have multiple branches; does not need to advertise; and does not have private shareholders seeking short-term profits. The profits return to the bank, which either distributes them as dividends to the state or uses them to build up its capital base in order to expand its loan portfolio.

The BND does not compete but partners with local banks, which act as the front office dealing with customers. It does make loans that community banks are unable to service, but this is not because the borrowers are bad credit risks. It is because either the loans are too big for the smaller banks to handle by themselves or the smaller banks cannot afford the regulatory burden of lending in rural communities where they get only a few loans a year.

Among other cost savings, the BND is able to make 2% loans to North Dakota communities for local infrastructure — half or less the rate paid by local governments in other states. The BND also lends to state agencies. For example, in 2016 it extended a $200,000 letter of credit to the State Water Commission at 1.75% and a $56,000 loan to the Water Commission to pay off its bond issues. Since 50% of the cost of infrastructure is financing, the state can cut infrastructure costs nearly in half by financing through its own bank, which can return the interest to the state.

If Phil Murphy wins the New Jersey governorship and succeeds in establishing a New Jersey state-owned bank, expect a wave of public banks to follow, as more and more elected officials come to understand how banking works and to see the obvious benefits of establishing their own.



Housing, battling racism and a municipal bank top agenda for L.A. council president

Los Angeles should explore whether to create a municipal bank that would finance affordable housing and throw its doors open to the cannabis industry, City CouncilPresident Herb Wesson said Tuesday.

Wesson tossed out the idea as part of a sweeping speech that set out his agenda for his final term. In addition to the bank, Wesson said L.A. must take new and innovative steps to battle racism, protect immigrants and build more affordable housing.

“When our grandchildren tell stories of us, what will they say? Will they say we were brave?” askedWesson, who recently was reelected as council president. “When the history books remember us, will they say that we did everything within our power to improve the lives of the people we represent?”

To combat hatred, Wesson wants the city to help organize scores of intimate dinners between people of different races, faiths and backgrounds. To defend immigrants, he wants the city to craft new legislation. And to ensure more affordable housing is built, Wesson wants a new commission to think up ideas.

But his most unexpected proposal was forming a bank: Wesson suggested that a municipal bank could help finance affordable housing, provide loans for small businesses and entrepreneurs, and give the marijuana industry a safe place to park its cash. Cannabis businesses have been shut out of many banks and rely heavily on cash transactions.

“Do you know, we’ve got people that are going to go home tonight and sleep on a mattress that’s worth $2 million?” Wesson said, alluding to marijuana entrepreneurs stashing cash at home. “We have to figure out a way to make this industry work. We in government are supposed to push the envelope, not protect the status quo.”

The Southern California Coalition, a marijuana industry group, welcomed the idea. “The cannabis industry is perceived to be a sitting duck for crime because it’s heavily cash based,” said Adam Spiker, the group’s executive director, adding that marijuana businesses also struggle to get loans and have had trouble finding landlords willing to accept cash.

The speech, which was promoted in advance to the media, had the feel of another State of the City address. Wesson, a former speaker of the California State Assembly, greeted fellow council members Tuesday by saying that the inauguration ceremony earlier this month was “the mayor’s day,” while “today is our day.”

Ahead of his speech, a video revisited some celebrated moments for the City Council, including increasing the citywide minimum wage, passing a bond to help the homeless and courting the Olympics.

Wesson, 65, led his remarks with a story, recounting that white men had pelted him with a milkshake and called him racial slurs when he was a 12-year-old headed to the movies in Ohio. He went on to list a number of hateful incidents in the last year, including the desecration of Jewish cemeteries and the slaying of two men trying to defend a Muslim girl on a Portland, Ore., train.

“We cannot stand by and allow bad people to roll back the clock on the progress that we have made, not just in this city, but in this country,” Wesson said.

Wesson plans to partner with Community Coalition, an advocacy group formerly led by City Councilman Marqueece Harris-Dawson, to host more than 100 small dinners that bring Angelenos together throughout the city.

After the speech, he told reporters that he believed face-to-face dinners could change the world, saying that such discussions at college and church had helped him let go of a hardened heart after he was attacked as a youth.

To address the housing crisis facing Angelenos, Wesson said he wanted a new commission to come up with strategies to make it easier to build affordable housing. The commission, created in partnership with the Los Angeles Area Chamber of Commerce and the Los Angeles County Federation of Labor, could explore everything from speeding up permits to repurposing shipping containers, Wesson said.

Wesson said a municipal bank also could help finance more affordable housing. He did not go into details Tuesday about how precisely the L.A. bank would work, saying that he wanted Councilman Paul Krekorian to start examining the idea and see whether it was worthwhile.

The idea of a public bank has been championed by some local activists who see it as a way to keep money in the community and steer clear of “unethical investments.” North Dakota created a public bank nearly a century ago; campaigns to create public banks have popped up in Oakland, San Francisco and other cities.

As of Tuesday afternoon, more than 400 people had signed a Change.org petition backing a Los Angeles municipal public bank “accountable to the people.” Phoenix Goodman, one of the co-founders of Public Bank L.A., said that activists who want Los Angeles to divest from Wells Fargo had realized that they needed “an ethical alternative.”

“The real solution isn’t going from a big bank to another big bank — it’s transcending Wall Street altogether,” Goodman said.

But the idea also drew some skepticism Tuesday. The city has “structural deficits going on forever and now they want to start a bank?” said Jack Humphreville, who serves on the Neighborhood Council Budget Advocates, which provides input for city leaders on the budget.

The last time Wesson gave such a speech two years ago, some wondered whether the prominent address meant he was angling to replace Mayor Eric Garcetti. The Tuesday address comes three years before the powerful and charismatic politician will be termed out of the City Council.

In his speech, Wesson repeatedly cast his gaze beyond Los Angeles to the nation at large. But when asked, Wesson said that didn’t mean he was eyeing any kind of national office — only emphasizing that Los Angeles could lead the country toward progress.

“I’m not going anywhere,” Wesson said. “L.A. is stuck with me.”


Phil Murphy opens on Broadway

“People focus on the big companies a lot, but small businesses are the big employers in the state, and if you look at where we’re going to get employment going forward, it’s going to be small business more than anything else,” said Democratic gubernatorial hopeful Phil Murphy standing in the 18th Street Farm Fresh Market on Broadway.

“Look down Broadway. You don’t see Apple, you don’t see General Motors. These are small businesses, and they need leadership from the state.” – Phil Murphy

Murphy, the former ambassador to Germany under President Barack Obama, is coming off a commanding victory in the primary election in June. He doubled the number of votes of the next strongest performers, Assemblyman John Wisniewski and Jim Johnson, combined. He’s in full campaign mode, with the November elections coming up fast, where he will face Republican Kim Guadagno, who served as Lieutenant Governor under Gov. Christopher Christie.

Bayonne is a city of small businesses, unlike Hoboken, which is home to major corporations like Jet and Pearson, or Jersey City, with offices that house Advance Digital, Forbes, Mack Cali, and Murphy’s former employer, Goldman Sachs.

Murphy, who visited Bayonne on Friday, July 21, said, “Look down Broadway. You don’t see Apple, you don’t see General Motors. These are small businesses, and they need leadership from the state.”

Instead of Microsoft or Exxon Mobil, Broadway houses small businesses like Herbert’s Army and Navy store, Hendrickson’s Corner, and Garden State News. “You don’t see places like this anymore,” Murphy said at Garden State News, which provides perhaps the widest selection of print news and magazines in town. “I love it.”


Murphy is not known as a progressive thought leader, but rather, by many, as another financier running for office. However, he brings both progressivism and finance to the table with an old idea from a populist uprising in North Dakota a century ago and adapted for modern capitalism –a public bank.

“You ask a small business person the reason you didn’t get bigger, what’s the reason your business failed, why you couldn’t get started to begin with; it’s invariably [lack of] capital,” Murphy said. “So one of our ideas is to start a public bank that the citizens would own. And one of the main lines of business would be lending money to small businesses through community banks. So we’d work with community banks, not compete with them. We want to get more capital to them and through them.”

A public bank would, in theory, funnel tax revenue through local community banks, such as Bayonne Community Bank, to provide loans and credit to small businesses and help fund small-scale infrastructure projects, while returning the profits from interest back into state coffers. It could be a more efficient way to lend than the current system, which relies heavily on a few multinational financial conglomerates and a shrinking number of community banks.

Skepticism about the idea abounds in the finance hub of New Jersey, which ranks dead last in fiscal health in an annual George Mason University Mercatus Center study. Meanwhile, North Dakota, which created its public bank in 1919, and remains the only state to ever have done so, ranks second.

Garnering support

Murphy is shoring up early support in Hudson County, a vital political battleground for any gubernatorial candidate. His tour through Bayonne was facilitated by Assemblyman Nicholas Chiaravalloti, Mayor James Davis, Bayonne Business Administrator Joe DeMarco, and members of the Bayonne City Council, who were on hand for the event.

“I think it’s great that he came out. Hopefully he can make an impact,” said City Council President Sharon Ashe-Nadrowski. “It’s not every day you get an opportunity like this.”

Mayor James Davis, who first met Phil Murphy before he ran for mayor, strongly supports his candidacy. Davis said the most vital policy decision Murphy can make as governor would be to create an equitable and stable school funding policy.

“The thing is, you have to turn around and make it fair for everybody,” Davis said. “I really believe that is going to be one of the staples of his administration. I think school funding is going to become fair for everybody in the state.” He’s confident that Murphy’s experience in finance will be an advantage. “I really believe that his fiscal prowess is going to be something that he is going to show in the first two years of his administration.”

Murphy has heavily criticized Christie’s school funding policies in the past, and said on Friday that more resources need to be dedicated to infrastructure improvements and public education to achieve fiscal health for communities across the state.

“The fact of the matter is, we haven’t had investment in public infrastructure,” Murphy said. “We’ve taken money from infrastructure, from public education. We haven’t really done much for small businesses over the past seven and half years.”

A Bank Even a Socialist Could Love

“Money is a utility that belongs to all of us,” says Walt McRee. McRee is a velvety-voiced former broadcaster now plotting an audacious challenge to the financial system. He’s leading a monthly conference call as chair of the Public Banking Institute (PBI), an educational and advocacy force formed seven years ago to break Wall Street’s stranglehold on state and municipal finance.

“This is one of the biggest eye-openers of my life,” says Rebecca Burke, a New Jersey activist on the call. “Once you see it, you can’t look back.”

This ragtag group—former teachers, small business owners, social workers— wants to charter state and local banks across the country. These banks would leverage tax revenue to make low-interest loans for local public works projects, small businesses, affordable housing and student loans, spurring economic growth while saving people—and the government—money.

At the heart of the public banking concept is a theory about the best way to put America’s abundance of wealth to use. Cities and states typically keep their cash reserves either in Wall Street banks or in low-risk investments. This money tends not to go very far. In California, for example, the Pooled Money Investment Account, an agglomeration of $69.5 billion in state and local revenues, has a modest monthly yield of around three-quarters of a percent.

When state or local governments fund large-scale projects not covered by taxes, they generally either borrow from the bond market at high interest rates or enter into a public-private partnership with investors, who often don’t have community needs at heart.

Wall Street banks have used shady financial instruments to extract billions from unsuspecting localities, helping devastate places like Jefferson County, Ala. Making the wrong bet with debt, like the Kentucky county that built a jail but couldn’t fill it with prisoners, can cripple communities.

Even under the best conditions, municipal bonds—an enormous, $3.8 trillion market—can cost taxpayers. According to Ellen Brown, the intellectual godmother of the public banking movement, debt-based financing often accounts for around half the total cost of an infrastructure project. For example, the eastern span of the San Francisco-Oakland Bay Bridge cost $6.3 billion to build, but paying off the bonds will bring the price tag closer to $13 billion, according to a 2014 report from the California legislature.

Public banks reduce costs in two ways. First, they can offer lower interest rates and fees because they’re not for-profit businesses trying to maximize returns. Second, because the banks are publicly owned, any profit flows back to the city or state, virtually eliminating financing costs and providing governments with extra revenue at no cost to taxpayers.

“It enables local resources to be applied locally, instead of exporting them to Wall Street,” says Mike Krauss, a PBI member in Philadelphia. “It democratizes our money.”

Legislators, Brown says, commonly object that governments “don’t have the money to lend.” But this misunderstands how banks operate. “We’re not lending the revenues, just putting them in a bank.” That is, the deposits themselves—in this case tax revenues—are not what banks loan out. Instead, banks create new money by extending credit. Deposits simply balance a bank’s books. Public banks, then, expand the local money supply available for economic development. And while PBI has yet to successfully charter a bank, there’s an existing model in the unlikeliest of places: North Dakota.

During the Progressive Era, a political organization of prairie populists known as the Nonpartisan League took control of the state government. In 1919, they established the Bank of North Dakota. It has no branches, no ATMs, and one main depositor: the state, its sole owner. From that deposit base, BND makes loans for economic development, including a student loan program.

BND also partners with local private banks across the state on loans that would normally be too big for them to handle. These loans support infrastructure, agriculture and small businesses. Community banks have thrived in North Dakota as a result; there are more per capita than in any other state, and with higher lending totals. During the financial crisis, not a single North Dakota bank failed.

BND loans are far more affordable than those from private investors. BND’s Infrastructure Loan Fund, for example, finances projects at just two percent interest; municipal bonds can have rates roughly four times as high. And according to its 2015 annual report, the most recent available, BND had earned record profits for 12 straight years (reaching $130 million in 2015), during both the Great Recession and the state’s more recent downturn from the collapse in oil prices. A 2014 Wall Street Journal story described BND as more profitable than Goldman Sachs. Over the last decade, hundreds of millions of dollars in BND earnings have been transferred to the state (although the overall social impact is somewhat complicated by the bank’s role in sustaining the Bakken oil boom).

The long march through the legislatures

Brown founded the Public Banking Institute in 2010, after years of evangelizing in articles and books such as The Web of Debt: The Shocking Truth About Our Monetary System and How We Can Break Free. Since then, by Walt McRee’s estimate, around 50 affiliated groups have sprouted up in states, counties and cities from Arizona to New Jersey.

“I’ve been working against the system all my life,” says Susan Harman of Friends of the Public Bank of Oakland. “I think public banking is the most radical thing I’ve ever heard.” Harman, a former teacher and a onetime aide to New York City Mayor John Lindsay, helped get the Oakland City Council to pass a resolution last November directing the city to determine the scope and cost of a feasibility study for a public bank—a tiny yet promising first step.

A feasibility study completed by Santa Fe, N.M., in January 2016 found that a public bank could have a $24 million economic impact on the city in its first seven years. A resolution introduced last October would create a task force to help the city prepare to petition the state for a charter. “It’s the smallest municipality investigating public banking,” says Elaine Sullivan of Banking on New Mexico, who hopes the task force could complete its business plan by the end of the year. “We’re interrupting the status quo.”

In February 2016, the Philadelphia City Council unanimously voted to hold hearings discussing a public bank. Advocates are now working with the city treasurer to find funds to capitalize the bank.

PBI has faced a rougher path in state legislatures. In Washington, state Sen. Bob Hasegawa (D) has introduced a public banking bill for eight straight years. Despite numerous co-sponsors, the bill can’t get out of committee. Efforts in Arizona and Illinois have also gone nowhere. California Gov. Jerry Brown (D) vetoed a feasibility study bill in 2011, arguing the state banking committees could conduct the study; they never did.

One overwhelming force opposes public banking: Wall Street, which warns that public banks put taxpayer dollars at risk. “The bankers have the public so frightened that [public banking] will destroy the economy,” says David Spring of the Washington Public Bank Coalition. “When I talk to legislators, some are opposed to it because ‘it’s for communists and socialists.’ Like there are a lot of socialists in North Dakota!”

In Vermont the financial industry fought a proposed study of public banking, says Gwen Hallsmith, an activist and former city employee of Montpelier. “We don’t have branches of Bank of America or Wells Fargo in Vermont, but they have lobbyists here.” So Hallsmith got the study done herself, through the Gund Institute at the University of Vermont. It found that a state bank would boost gross domestic product 0.64 percent and create 2,500 jobs.

The state eventually passed a “10 percent” program, using 10 percent of its cash reserves to fund local loans, mostly for energy investments like weatherizing homes. Meanwhile, Hallsmith helped push individual towns to pass resolutions in favor of a state bank— around 20 have now done so. Hallsmith says her advocacy came at the expense of her job; the mayor of Montpelier, in whose office she worked, is a bank lobbyist. Hallsmith now coordinates a citizen’s commission for a Bank of Vermont.

Because of state resistance, PBI has encouraged its supporters to go local. And several issues have emerged to assist. For instance, environmental and indigenous activists have demanded that cities move money from the 17 banks that finance the Dakota Access Pipeline. But therein lies another dilemma: Who else can take the money? Community banks and credit unions lack the capacity to manage a city’s entire funds, and larger banks are better equipped to deal with the legal hurdles involved in handling public money. So divesting from one Wall Street bank could just lead to investing in another.

A public bank could solve this problem, either by accepting cities’ deposits or by extending letters of credit to community banks to bolster their ability to take funds. Lawmakers in Seattle have floated a city- or state-owned bank as the best alternative for reinvestment, and Oakland council member Rebecca Kaplan has connected divestment and public banking as well.

Another opportunity arises with marijuana legalization initiatives. Because cannabis remains illegal at the federal level, most private banks are wary of working with licensed pot shops, fearing legal repercussions. This means many of these shops subsist as all-cash businesses. “It’s seriously dangerous; people arrive in armored cars to City Hall to pay taxes with huge bags of money,” says Susan Harman. In Oakland and Santa Rosa, Calif., public banking advocates are partnering with cannabis sellers to offer public banks as an alternative, which would make the businesses safer while giving the banks another source of capital.

While Donald Trump hasn’t formally introduced a long-discussed infrastructure bill, his emphasis on fixing the nation’s crippling public works has also bolstered the case for public banking. Ellen Brown maintains the country could save a trillion dollars on infrastructure costs through public-bank financing. That’s preferable to Trump’s idea of giving tax breaks to public-private partnerships that want big returns.

From the Great Plains to Trenton

“All it’ll take is the first domino to fall,” says Shelley Browning, an activist from Santa Rosa. “Towns and cities will turn in this direction because there’s no other way to turn.” And PBI members think they’ve found an avatar in Phil Murphy, a Democrat and former Goldman Sachs executive leading the polls in New Jersey’s gubernatorial primary this year.

Murphy has made public banking a key part of his platform. “This money belongs to the people of New Jersey,” he said in an economic address last September. “It’s time to bring that money home, so it can build our future, not somebody else’s.”

Derek Roseman, a spokesman for Murphy, tells In These Times that Bank of America holds more than $1 billion in New Jersey deposits, but only made three small business loans in the entire state in 2015. Troubled state pensions could help capitalize a state-owned bank, and would earn more while paying lower fees.

Murphy’s primary opponent, John Wisniewski, chaired the Bernie Sanders campaign in the state, while Murphy raised money for Hillary Clinton. Some believe Murphy is simply using public banking to cover his Wall Street background—and on many issues, Wisniewski’s policy slate is more progressive. But Brown thinks Murphy’s past primed him to recognize public banking’s power: “It’s always the bankers who get it.”

The first new state-owned bank in a century, chartered in the shadow of Wall Street, could shift the landscape. What’s more, blue-state New Jersey and red-state North Dakota agreeing on the same solution would highlight public banking’s biggest asset: transpartisan populist support. “We have Tea Partiers and Occupiers in the same room liking public banking. What does that tell you?” asks PBI’s Mike Krauss.

“Regardless of declared conservative or progressive affiliations,” says state Sen. Hasegawa, “regular folk … almost unanimously grasp the concept.” He is working with Washington’s Tea Partybacked treasurer, Duane Davidson, to advance public banking. “I go to eastern Washington, … they get the whole issue about independence from Wall Street and corporate control.”

In fact, Krauss is himself a Republican. “The biggest thing going on in America, people decided we don’t have any control anymore,” he says. “Whether it’s Bernie’s people or Trump’s people, they’re articulating the same thing but differently. … They want control of their money—and it is their money.”


The People’s Bank

How did deep-red North Dakota end up with the nation’s most populist financial institution?

When the financial crisis struck in 2008, nearly every state legislature was left contending with massive revenue shortfalls. Every state legislature, that is, except North Dakota’s. In 2009, while other states were slashing budgets, North Dakota enjoyed its largest surplus. All through the Great Recession, as credit dried up and middle-class Americans lost their homes, the conservative, rural state chugged along with a low foreclosure rate and abundant credit for entrepreneurs looking for loans.

Normally one of the overlooked states in flyover country, North Dakota now had the country’s attention. So did an unlikely institution partly responsible for its fiscal health: the Bank of North Dakota. Founded in 1919 by populist farmers who’d gotten tired of big banks and grain companies shortchanging them, the only state-owned bank in America has long supported community banks and helped keep credit flowing. The bank’s $5 billion deposit base comes mostly from state taxes and funds. The money is leveraged so the bank can offer loans for local small businesses and infrastructure projects; the interest, rather than going to Wall Street banks, stays in the state. The Bank of North Dakota rarely makes direct loans; instead, when a community bank wants to give a sizable loan but lacks the capital, the state bank will partner on the loan and provide a backstop. Such partnerships help ensure that small-business owners, farmers, and ranchers can access lines of credit—and they strengthen community banks, which is why North Dakota has more local banks per capita than any other state.

During times of economic crisis, from the Great Depression to the Great Recession, the state bank has been essential to cushioning the blow for North Dakotans. It offers countercyclical support, meaning that in bad times, when credit starts to dry up, it plays an even bigger role in offering credit and helping struggling small banks make loans to good candidates. But the state bank has been good for North Dakota in another way you wouldn’t expect: It’s helped bolster the state budget. Since it became profitable in the 1940s, the Bank of North Dakota has returned more than $555 million to the state’s general fund.

North Dakota’s rosy financial picture can’t all be chalked up to the bank. An oil boom in the western part of the state has created thousands of jobs, and North Dakota’s housing prices were always low, so they never inflated to the dangerous levels other states saw. But policy experts like Sam Munger, the managing director at the University of Wisconsin-Madison Center for State Innovation, say that by offering partnerships and avoiding the risky practices of commercial banks, like subprime lending, the state bank was instrumental in keeping community banks healthy. “It’s partly because you have civil servants in charge,” he says, “rather than folks whose paychecks depend on how much money the bank makes in a quarter.”

To many Americans, of course, the idea that state governments should be running banks—that they can run them better—is anti-capitalist blasphemy. But in conservative North Dakota, the bank is so well established and popular that former U.S. Senator Kent Conrad, who’s 64, says he can’t remember a time when anyone seriously challenged it. Now, across the country, some policymakers and community groups want to follow North Dakota’s lead. Since 2009, lawmakers in more than 20 states have filed legislation to either start a state-owned financial institution or at least study the prospects. Most of the efforts have fizzled, but this year lawmakers in several states are cautiously optimistic they can turn their proposals into policy—creating, if not a full–functioning state bank, then at least the groundwork for one.

It won’t be easy; the idea is so unfamiliar that it strikes many as downright kooky, if not scarily socialistic. Times were different, opponents insist, when North Dakota founded its bank in 1919. But the hurdles faced by state-bank proponents a century ago were not altogether different from what they face today.

By the turn of the last century, North Dakota farmers knew they were getting cheated. Wheat dominated the state, and its growers were at the mercy of Minneapolis-St. Paul’s big banks and grain companies. Most Midwestern states were “economic colonies,” says Bill Pratt, a historian of the era at the University of Nebraska. “The empire was administered from the Twin Cities.” North Dakota farmers faced double-digit interest rates, while their cousins closer to the empire’s capital only had to pay a fraction of that. The loans almost always came due during the harvest, which forced farmers to sell more wheat when prices were cheapest. Making matters worse, just about every grain elevator along the railroad was operated by the big grain companies, which offered the same price and the same grade rating—always lower than the growers needed and wanted. The final insult: When the grain was weighed, the companies used a fan to blow on the pile, supposedly to remove dust. As an article in the Wyoming Star Tribune noted in 1921, “What actually happened was that the fan removed not only the dust but during the course of the year in some of the larger elevators, fifty thousand bushels of grain as well.”

Republican lawmakers who dominated North Dakota politics were in the pockets of the banks and grain companies, so the farmers got nowhere lobbying for reform. In 1915, they began to team up with former socialist organizers eager to create a viable political operation. Calling themselves the Non-Partisan League, they began to challenge Republicans in primaries. Enthusiasm for the NPL grew quickly; by the end of 1915, the group had 25,000 dues-paying members. After the 1916 elections, the group controlled the state house and governor’s office. “They kind of caught the old-style politicians by surprise,” Pratt says. By 1918, the NPL had taken the state senate as well and set about implementing a populist agenda, which included creating a number of state-owned institutions. At the top of the list, along with a state-owned mill, was a bank.

The idea was relatively simple: Sell $2 million in bonds to finance the institution, require municipalities to make deposits to the bank to keep it capitalized, and start helping farmers access credit at reasonable rates. A powerful Industrial Commission—made up of the governor, attorney general, and agriculture commissioner—would oversee the bank, as well as other state-owned projects the NPL was launching.

Trouble was, the NPL had lousy timing. By the time it came to power after the 1918 elections, World War I was over and a postwar recession was hitting American agriculture as demand dropped off. Meanwhile, the war had stoked right-wing nationalism and the communist revolution in Russia had successfully deposed the czar, heightening fears of “red” revolt in the U.S. It was not a propitious time for radical reform.

News of the Bank of North Dakota was greeted with suspicion and fear. “North Dakota Adopts Autocratic Socialism,” blared the front-page headline of one Montana newspaper. Media coverage was largely critical (except, of course, in the NPL’s paper, The Nonpartisan Leader). National papers were particularly free with comparisons to Bolshevism; The New York Times, which featured frequent stories on the bank, ran a piece in 1921 arguing that the NPL “dreamed of duplicating in at least a great section of this country what Lenin and Trotsky did in Russia.”

Assaults on the bank had serious consequences. To appease the state’s community banks, which worried about the competition, the Industrial Commission promised not to withdraw state funds that had already been deposited with local banks. Anti-NPL politicians forced an audit, filed an unsuccessful lawsuit, and by 1920 had repealed requirements that municipalities make deposits there. As a result, the bank had almost no liquidity. Its bonds weren’t selling, and it stopped honoring its checks.

The NPL’s political opposition, the Independent Voters Association, set out to kill the Bank of North Dakota for good in 1921. It floated a state referendum on the NPL’s state-owned programs, including the bank, and engineered a recall election for the Industrial Commission members. (The recall and referendum were innovations of the NPL, now being used against it.) The election resulted in the nation’s first recall of a governor, attorney general, or agriculture commissioner. But while voters dumped the bank’s commissioners, they surprised almost everyone and voted to keep the bank.

A decade later, North Dakotans would be grateful they’d stuck with their “socialist” bank. The 1932 election, as the Great Depression raged, brought a new wave of NPL leaders to power. With the agriculture community in crisis, the bank began actively helping farmers to repay loans. While many farms were foreclosed on, giving the Bank of North Dakota thousands of acres of land, bank leadership started innovative programs to help people buy back what was once theirs. It all offered North Dakotans a fresh view of their bank as a helpful state institution—working for the common good, bailing out folks in need.

Over the following decades, the bank became a noncontroversial part of the state’s financial landscape. It made the nation’s first federally insured student loan in 1967 and became a major source of college loans. When the next great economic crisis hit, the Bank of North Dakota once again was indispensible, responding to the credit and loan crisis of the 1980s by aggressively backstopping local bank loans and providing credit that farmers could not get elsewhere.

By the 1990s, the state bank had become a major collaborator with the community banks that once feared it. A new bank president, John Hoeven, sought to make the bank a driver of economic growth, starting many of the programs for which the bank is now known, including targeted partner loans for small businesses. “I think the state bank has been hugely helpful to those community banks,” says former Senator Conrad. “They’re able to take loans that they just couldn’t do on their own.” Meanwhile, Hoeven’s leadership helped catapult him to the governor’s office and ultimately into the U.S. Senate—a Republican who owes his popularity, and his election, to his efforts to expand the role of a state-owned bank.

Given the success of North Dakota’s model, it’s hardly surprising that lawmakers in other states have tried to emulate the idea. Few of the measures have gained traction, partly because the idea of a state bank still strikes many as downright weird. This year, however, advocates are hoping that Vermont—which has been known to embrace the weird—will take up the cause. Vermont, state senator Anthony Pollina tells everyone who will listen, currently puts its tax dollars in the megabank TD. “They charge us fees, they lend our money wherever they want to lend it,” but “they don’t do that much lending in Vermont anymore. We need a bank that’s going to invest in the priorities of Vermont, not the priorities of Wall Street.” Pollina’s idea is to create a small-scale bank with around $50 million in assets. A bill to study its feasibility and propose a model has already been assigned to the committee on which Pollina serves as vice chair, and all five committee members are co-sponsors—good reasons for his optimism. In Montana, a group of lawmakers has introduced a bill to create a bank; it’s the third attempt there, but advocates are hopeful, having successfully brought together a coalition of small businesses and progressive-minded organizers.

A new state bank—somewhere, anywhere—would help to legitimize the idea. Between 2010 and 2011, lawmakers in 16 states from both parties proposed a total of 27 bills to either create a state bank or study its feasibility. Most failed. But after Massachusetts passed a bill to investigate a state bank, the Federal Reserve Bank of Boston produced a report advising against it. While the report did credit North Dakota’s state bank with emphasizing “safe and sound lending practices” and partnering successfully with small banks, it also pointed out that the bank, on its own, could not stop financial crises that directly impact North Dakota, like the one in the 1980s (even if it did alleviate the problems). The report argued that policymakers “would be better off studying the federal programs that have been augmented since the crisis.” The Center for State Innovation and De¯mos, a progressive think tank, wrote a joint letter taking issue with the report’s findings and accusing the Boston Fed of playing politics. Big banks, they pointed out, increasingly do not lend to small businesses, and there’s not enough evidence to show that the federal programs are helpful or adequate.

Still, the report took its toll; as one of the only official studies on the topic of state banks, it added to the already-considerable political challenges advocates face. In Oregon, a strong grassroots coalition pushed hard for a state bank but wound up with an investment act instead. The state will make a larger investment in collaborative loans with small banks. In New Mexico, state Representative Brian Egolf introduced a measure in the last session to create a state-owned bank, only to be confronted with an angry lobby of community banks. This time around, he’s renamed the financial entity a “small business development fund” so the community banks won’t try to kill it.

Proponents like Marc Armstrong, the executive director at the nonprofit Public Banking Institute, argue that banks are better for states than economic-development funds. Rather than directly loaning out, say, $50 million, a state bank would leverage that money, allowing it to put as much as ten times the asset amount to work in the state through relatively low-risk loans. In Armstrong’s own state, California, counties pay millions in interest on bonds and loans for their infrastructure needs. “If California had had a state bank,” he says, “we could have used the state bank credit to fund virtually all of that debt at very low cost.”

Still, for many states, creating or beefing up an economic-development fund is the only option that’s viable. Local banks often worry that a publicly owned state bank would hurt business rather than offer support. For their part, politicians tend to have a knee-jerk reaction against the “crazy” idea of a public bank. North Dakotans are baffled by that. “All of those people in other states who are really concerned ought to talk to the banks in North Dakota,” says U.S. Senator Heidi Heitkamp, a Democrat who served on the Industrial Commission. Community banks, she says, “have found the Bank of North Dakota to be a complete and total partner, to be willing to share risk with them on things they wouldn’t do alone.”

Perhaps the best argument for state banks is found in North Dakota’s history of weathering economic crises better than most. Sam Munger of the Center for State Innovation says that while a state bank can’t save a state economy “single-handedly,” the countercyclical nature of the bank will “help cushion the effect of the next inevitable boom-and-bust cycle. Build it now, so it’s in place and can be effective and functioning the next time.”

For now, however, the only state bank still operates in one of the country’s most conservative states. Roger Johnson, North Dakota’s former agriculture commissioner, says the state got lucky. “I’m a huge supporter of the state bank, and most people in North Dakota are,” Johnson says. But if legislators tried to create a bank today, he says, “I can assure you it would not have a snowball’s chance in hell of getting passed.”

Donald Trump Wants to Gut Protections for Bank Customers. Here’s How to Fight Back.

Photo: FrankRamspott/iStock; KeithBishop/iStock
Call it the “public option.”

With Wall Street as greedy as it ever was, and the Trump administration seeking to ditch banking restrictions enacted in 2008 to protect the little people, a handful of cities are considering a do-it-yourself alternative: Public banking is just what it sounds like—financial institutions owned and operated by a government entity. Officials in Philadelphia and Oakland, California, are taking a hard look at the idea, and Santa Fe, New Mexico, has done a feasibility study that concluded a city-run bank would benefit the community, socially and economically. If done right, the report found, the bank would create a “robust local lending climate” and bring in millions of dollars per year in revenue.

From 1910 to 1966, Americans could deposit and borrow small sums at US post offices.

There are already successful public banks in France, Germany, Japan, Switzerland, the United Kingdom, and elsewhere. There’s even a robust American model: North Dakota has had a state-run bank for nearly a century. Although created by socialists, the Bank of North Dakota retains ironclad support among the red state’s residents, many of whom credit it for helping North Dakota weather the 2008 financial crisis. Moreover, from 1910 to 1966, US post offices operated as de facto public banks where people could deposit and borrow small sums.

Leading the push in Oakland are progressive City Council members Rebecca Kaplan and Dan Kalb. “Public banking can give us a bank that is more responsive to the needs of the community,” Kaplan told me, “rather than prioritizing the needs of shareholders who don’t live in our community or the needs of corporate profit.”
The other big impetus, Kaplan says, is to give local pot entrepreneurs a safe place to stash their cash—literally. “We have a large and growing cannabis industry which has been kept out of traditional banks,” she says, “and so getting them access to banking so they don’t have to work in cash would be very helpful.” Dispensaries and future cannabis sellers (recreational pot won’t be legal officially until 2018) won’t have to worry so much about getting robbed, and all that capital could go a long way in helping a city bank get established.Kaplan says there are two key reasons Oakland should pursue public banking. The first is that it can help low-income people—and especially people of color who may face discrimination at corporate banks—secure loans at a fair rate. “Oakland has long suffered from redlining,” Kaplan points out, and for-profit institutions can’t necessarily be trusted to refrain from discriminatory tactics.

“The beauty is that you could really tailor a public bank to target whatever a community’s needs are,” says Mehrsa Baradaran, a law professor at the University of Georgia and author of How the Other Half Banks. Baradaran, who worked on Wall Street for a decade, explains that the major banks are bad at meeting community needs because their end goal is “not to benefit the people—it’s to increase capital.” A public bank can pool local resources and apply its money to local concerns.

“Maybe a certain community has a problem with payday lending,” Baradaran offers. A public bank could provide free accounts and emergency loan services for low-income people without the predatory practices of subprime corporate lenders. “Or maybe another community has an affordable housing issue, or needs farm loans or student loans.”

Interest has spiked since the 2008 crisis: “The hostility to the private banking system is quite hot.”

The cultural climate is ripe for this conversation, says economist Richard Wolff, a retired University of Massachusetts professor who now teaches at the New School. “One of the many consequences of the collapse in 2008 has been a renewed interest in public banking,” he says. “The hostility to the private banking system is quite hot. The spectacle of bank leaders rushing to Washington and begging for a bailout was not lost on the American people.”

Not only did those bailouts trigger outrage among average people who saw no such relief, Wolff points out, but they also revealed the pseudo-public nature of private banks. “Post-bailout, we saw a discomfort with this idea that so much of the banks’ losses were being borne by the taxpayer,” Baradaran says, “while their gains were just going to their own shareholders. That’s wealth redistribution the wrong way.”

Wolff, a longtime advocate for public banking, believes that the job of managing a community’s money is too important to be delegated to for-profit corporations. “Nothing that is so socially embedded should be left in the hands of an institutional organization whose admitted, explicit first priority is maximization of profit for itself,” he says. “The goals and objectives of the private enterprise are not necessarily overlapping one for one with the social benefit.”

A public bank can resolve that tension. As the president of the Bank of North Dakota put it, “We’ve never been a bank that tries to hit home runs. That’s not what we’re all about. We have a specific mission which is more important. Most corporations and banks, their top priority is to maximize shareholder return. And that is a nice byproduct for us because we do have a nice return…But really where we take the most satisfaction is making sure we meet the needs of the state, and finance those types of things that make our state go forward.”

Cities and States Prefer Public Banks to Wall Street

Alarmed by the corruption and greed of Wall Street, many US cities and states are studying the feasibility of establishing public banks.

By John Lawrence, San Diego Free Press


Public banks are owned by cities, states or other jurisdictions and serve to keep funds local instead of being deposited on Wall Street. The funds are then used to support local economic activities like small business loans and student loans.

Washington State has already cut its ties with Wells Fargo because they funded DAPL. Now they want to get rid of Wall Street as a place to park their money making use of the local economy and profiting the people of Washington instead of the bankers of Wall Street. Bills were introduced on January 18 in both the House and Senate of the Washington State Legislature that add Washington to the growing number of states now actively moving to create public banking facilities.

Ellen Brown, author of Web of Debt and The Public Banking Solution writes:

The bills, House Bill 1320 and Senate Bill 5238, propose creation of a Washington Investment Trust (WIT) to “promote agriculture, education, community development, economic development, housing, and industry” by using “the resources of the people of Washington State within the state.”

Currently, all the state’s funds are deposited with Bank of America. HB 1320 proposes that, in the future, “all state funds be deposited in the Washington Investment Trust and be guaranteed by the state and used to promote the common good and public benefit of all the people and their businesses within [the] state.”

The legislation is similar to that now being studied or proposed in states including Illinois, Virginia, Hawaii, Massachusetts, Maryland, Florida, Michigan, Oregon, California, and others.

Santa Fe, NM Considers Public Bank as Trump Threatens to Take Away Funding for Sanctuary Cities

The Mayor of Santa Fe, New Mexico has declared his city to be a sanctuary city in which case Trump has threatened to deny Federal monies to the city. The Mayor noted that Santa Fe had welcomed immigrants for over 400 years. A public bank could replace that funding:

If McEvers [interviewer from NPR] had asked what possible sources of funding might replace the money Trump is threatening to take away, Gonzales might have answered that Santa Fe was in the advanced stages of considering the creation of a publicly owned bank. In late October, three City Council members introduced a resolution to take the “final steps to determine” whether a public bank would be feasible. Earlier in 2016, a local advocacy group named Banking on New Mexico released a five-year model projecting that a Santa Fe bank could reduce debt service costs by $1 million a year and earn an annual profit, netting the city over $10 million in the bank’s first five years. While that wouldn’t completely offset funds the new administration is threatening to withhold, it would put the city in better shape to absorb the loss and begin the process of building an autonomous local economy that over time could transcend much of the need for federal dollars.

Oakland, CA Gets Serious About Public Banking

Two Council members have introduced a resolution to the Oakland City Council which says in part:

Resolution Directing The City Administrator To Prepare An Informational Report With The Cost Estimates Of Commissioning A Study Analyzing The Feasibility And Economic Impact Of Establishing A Public Bank For Or Including The City Of Oakland, And Providing Funding Options For The Feasibility Study, Including The Option Of Allocating To The Study Any Remainder Of The Money That Was Budgeted For The Goldman Sachs Debarment Proceedings.


WHEREAS, a public bank can have investment priorities that focus on the creation of jobs in Oakland that spur local economic growth by providing affordable credit to small and medium-sized businesses that have been historically ignored by the larger, more established banks; and

WHEREAS, a public bank can have investment priorities that center on providing loans for low and moderate income housing to help relieve the current housing crisis facing Oakland; and

WHEREAS, a public bank can have investment priorities that provide loans for energy conservation, installation of solar panels and measures for conserving water in Oakland; and

WHEREAS, Wall Street banks seek short-term profits for their private shareholders by investing in stocks, derivatives, credit default swaps and other speculative financial instruments; and

WHEREAS, there is a desire for local funding solutions that reinvest public funds in the local community; and

WHEREAS, public banking operates in the public interest, through institutions owned by the people through their representative governments; and

WHEREAS, public banks are able to return revenue to the community and can provide low-cost financing in support of City policies; and

WHEREAS, on September 8, 2016, Wells Fargo bank was fined $185 million for fraudulently opening up accounts without customers’ consent, which then damaged customers’ credit scores and caused customers to be charged illegal banking fees; and

WHEREAS, on May 20, 2015, Citigroup Inc. and JP Morgan Chase & Co. agreed to plead guilty to felony charges for conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange spot market; and

WHEREAS, on May 20, 2015, Citigroup Inc. agreed to pay a criminal fine of $945 million and JP Morgan Chase & Co. agreed to pay a criminal fine of $550, for illegally manipulating the foreign exchange market; and

WHEREAS, on May 20, 2015, the Federal Reserve announced that it was imposing a separate set of fines on Citigroup, Inc. and JP Morgan Chase & Co. of $342 million for their illegal practices in the foreign exchange markets; and

WHEREAS, on March 9th, 2016, the Wall Street Journal reported that Wall Street banks had paid in total more than $100 billion in fines and penalties for mortgage-related fraud, and

WHEREAS, said Wall Street banks’ criminal conduct and wrongful behavior should not be rewarded with future business dealings with Oakland; and

WHEREAS, the City of Oakland is tasked with holding and protecting the fundamental interest of the public as well as the financial well-being of the City; now, therefore be it

RESOLVED: That the Oakland City Council directs the City Administrator, or his/her designee, to prepare an informational report with the cost estimates of commissioning experts in public banking to conduct a study analyzing the feasibility and economic impact of establishing a public bank for the City of Oakland;

Please note that these are only a few of the “Whereas’s”. There’s more.

Profits to the People

Currently, the Bank of North Dakota (BND) is the only public bank in the country. All other states and cities deposit their revenues and pension funds with Wall Street with the profits going to Wall Street. That’s why so many states are in dire straits while North Dakota’s fiscal situation is just fine.

According to a January 19, 2017, New York Times article:

[A]lmost everywhere the fiscal crisis of states has grown more acute. Rainy day funds are drained, cities and towns have laid off more than 200,000 people, and Arizona even has leased out its state office building…

“It’s the time of the once unthinkable,” noted Lori Grange, deputy director of the Pew Center on the States. “Whether there are tax increases or dramatic cuts to education and vital services, the crisis is bad.”

Is it any wonder that President Pussy Grabber and his Republican cohorts are calling for the privatization of everything? Their mantra is that government is incompetent when the true fault lies in the fact that states and municipalities are being bled to death by Wall Street. Wall Street banks borrow money from the Fed at zero percent interest and then loan it to municipalities at 5% interest. That profit could go to the municipalities. The antidote for that is to establish a public bank from which profits will flow to the people as they have in North Dakota. Local control of local money should be the mantra.

There is a move in Congress to let states go bankrupt the way many US cities have. For instance, San Bernardino, CA; Stockton, CA; Orange County, CA; Jefferson County, AL; and Detroit, MI have all declared bankruptcy with the result that concomitant pension fund and contractual obligations to unions and others have gone by the wayside.

While those and other cities have been drained by the Wall Street banking crisis which resulted in increased borrowing costs and loss of revenues, BND and North Dakota have churned along quite nicely, thank you very much. They have provided low-cost affordable loans to small businesses and students, thus totally averting the worst effects that most cities and states which rely on Wall Street have suffered.

Image_OccupytheBanks (1)

BND provides back-up for local private banks by offering check clearing services and liquidity support. They invest in North Dakota municipal bonds to provide economic development. In the last ten years, the BND has returned more than a third of a billion dollars to the state’s general fund. North Dakota is one of the few states to consistently post a budget surplus.

Washington State Representative Bob Hasegawa, a prime sponsor of the Washington legislation, called the proposal for a publicly-owned bank “a simple concept that will reap huge benefits for Washington.”

In a letter to constituents, he explained, “The concept (is) to keep taxpayers’ money working here in Washington to build our economy. Currently, all tax revenues go into a ‘Concentration Account’ held by the Bank of America. BoA makes money off our money and we never see those profits again. Instead, we can create our own institution and keep taxpayers’ dollars here in Washington, working for Washington.

Dennis Ortblad writes in the Seattle Times:

“In fact, we propose a public bank in Washington that lends primarily to public institutions — such as school districts, affordable housing programs, public utilities — in order to reduce the state’s or a municipality’s reliance on the expensive bonds and fees in Wall Street markets.”

While President Pussy Grabber, Betsy DeVos and Repubs in general want to privatize everything, a public bank would help to shore up public enterprises like the public school system and local infrastructure. BND has a sterling credit record and earned for the state $130 million in 2015 alone, with total assets of $7.4 billion (its 12th consecutive year of record profits for the people of the state). That $130 million would have gone to Wall Street in any other state.

The US banking system including its central bank, the Federal Reserve, is privately owned. Is it any wonder that during the banking crisis of 2008, the first and only order of business was to bail out the banks, not homeowners who were overdue in their mortgages? They were hung out to dry despite the fact that many were told the bank would “help” them either by lowering interest rates, refinancing or forgiving principal in “underwater” mortgages. A public banking system is beholden not to private interests but to the people of the state or city in which it’s registered.

In an article, Seattle Votes to End $3 Billion Relationship with Wells Fargo Because of the Bank’s Dakota Access Pipeline Financing, Sydney Brownstone writes:

The Seattle City Council has unanimously voted to end the city’s relationship with Wells Fargo over the bank’s financing of the Dakota Access Pipeline (DAPL), its financing of private prison companies, and a regulatory scandal involving the bank’s creation of two million unauthorized accounts.

All nine council members voted to take $3 billion of city funds away from the bank after Seattle’s current contract expires in 2018. The vote occurred just hours after the Army notified Congress that it will be granting an easement allowing DAPL builders to drill under the Missouri River following a presidential memo from Donald Trump.

That $3 billion could find a home in a Seattle or Washington state public bank when one becomes available. All they have to do is mimic North Dakota’s public bank which has been working well for over 100 years. The Public Banking Institute is working on a model which could be replicated in cities and states throughout the US. All city council members would have to do is to vote to replicate the model.

One Seattle City Council member who is determined to bring about a public bank is Kshama Sawant. She is an American socialist politician, activist, and member of the Socialist Alternative. A former software engineer, Sawant became a socialist activist and part-time economics instructor in Seattle after immigrating to the United States. Sawant ran unsuccessfully for the Washington House of Representatives before winning her seat on the Seattle City Council. Sawant was the first socialist to win a city-wide election in Seattle since Anna Louise Strong was elected to the School Board in 1916. Socialist Alternative describes itself as “a community of activists fighting against budget cuts in public services; fighting for living wage jobs and militant, democratic unions; and people of all colors speaking out against racism and attacks on immigrants, students organizing against tuition hikes and war,

Sawant ran unsuccessfully for the Washington House of Representatives before winning her seat on the Seattle City Council. Sawant was the first socialist to win a city-wide election in Seattle since Anna Louise Strong was elected to the School Board in 1916. Socialist Alternative describes itself as “a community of activists fighting against budget cuts in public services; fighting for living wage jobs and militant, democratic unions; and people of all colors speaking out against racism and attacks on immigrants, students organizing against tuition hikes and war, women, and men fighting sexism and homophobia.”

A public bank could cut the cost of building public schools in Washington in half. Half the cost of building new schools is in interest paid to banks and bondholders. That would all come back to state or city coffers depending on whether the
schools were financed by a state or city public bank.

InfoGraphic_WallStreetBanksGraphic: Washington Public Banking Coalition

From the Washington Public Bank Coalition website:

How Our State Can Solve Its Budget Crisis: Create a Public Bank

Cut spending, fire teachers, raise taxes—these are the solutions always proposed to offset Washington State’s budget deficits.  The state’s budget crises do not arise from too much spending or too little taxation on the poor and middle class. Instead, since 2000, corporate tax breaks in Washington State have more than doubled. The state simply isn’t getting enough tax revenue from corporations (see: realwashingtonstatebudget.info).

Also, since the 2008 financial market collapse, banks have cut back on lending.  When small local businesses can’t secure low-interest loans, there are layoffs and business closures in the private sector, which also cause state revenues to plummet. To solve this problem, since 2010, 17 states, including Washington State, have drafted legislation to establish public banks based on the successful Bank of North Dakota.

A Public Bank for Cities in San Diego County

There is a local movement to create a public bank in San Diego. A group has been meeting regularly and is studying the possibilities for several cities within San Diego County. They are meeting with local officials people and hope to use the Oakland Resolution cited partially above as a first step in getting the ball rolling.

Notwithstanding some setbacks and some attrition of the ranks, our courageous group continues to fight for banking reform and the creation of public banks throughout California.  We have been encouraged by the recent success in Oakland with the unanimous approval of the Public Banking Resolution by their City Council. It gives us hope! We need referrals to the mayors, city Council members and finance directors for the 18 incorporated cities in San Diego County to stop our money from flowing to Wall Street!


John Lawrence graduated from Georgia Tech, Stanford and University of California at San Diego. While at UCSD, he was one of the original writer/workers on the San Diego Free Press in the late 1960s. He founded the San Diego Jazz Society in 1984 which had grants from the San Diego Commission for Arts and Culture and presented both local and nationally known jazz artists. John received a Society of Professional Journalists, San Diego chapter, 2014 award. His website is Social Choice and Beyond which exemplifies his interest in Economic Democracy. His book is East West Synthesis. He also blogs at Will Blog For Food. He can be reached at j.c.lawrence@cox.net.


Oakland Plans for Publicly Owned Bank, Thursday, Feb. 9

Oakland residents are showing growing interest in a plan to establish a public bank, which would provide an alternative to handing millions of dollars of city money to Wall Street each year.

Residents have been studying the idea and organizing support for it for a number years. Now, Councilmember Rebecca Kaplan has embraced the concept, and she is hosting a forum to discuss the benefits of creating a publically owned bank in Oakland, Thursday, Feb. 9, 6 p.m. – 8 p.m. in Hearing Room 3 at Oakland City Hall.

Also hosting the forum are Councilmembers Abel Guillen and Dan Kalb.

“We getting the feeling that there is so much interest that the room won’t hold all those who will show up,” said Susan Harman, Friends of the Public Bank of Oakland.

“Under present conditions in the county, cities will be forced more to fend themselves. They are likely not to be able to depend on the federal government and the current administration,” she said. “A public bank will be a new economic support for the city and its values.”

“This bank is about democratizing money.”

Presenters at the forum will be Marc Armstrong, co-founder and past President of the Public Banking Institute, and co-founder and president of Commonomics USA;

Tom Sgouros, author of “Checking the Banks: The Nuts and Bolts of Banking for People Who Want to Fix It,” and senior policy advisor to the Rhode Island Treasurer; Nichoe Lichen, member of Santa Fe’s, Brass Tacks Team “public banking facts that stick,” and board member of the Public Banking Institute; and Henry Wykowski, past prosecutor for the U.S. Attorney’s Office in Northern California, currently Harborside Health Center’s lead attorney, speaking on cannabis law as it relates to public banking.

Berkeley Mayor Jesse Arreguín also will be on the panel.

The Oakland bank, in which other cities could participate, would be a wholesale bank.

That is, it would not have ATMs, tellers or make loans to individuals but would partner with community banks and back them up so they could provide more services to individuals, said Harman.

“Partnering with community banks is another way to keep money local and not send it off to Wall Street,” Harman said.


How to Cut Infrastructure Costs in Half

Americans could save $1 trillion over 10 years by financing infrastructure through publicly-owned banks like the one that has long been operating in North Dakota.

President Donald Trump has promised to rebuild America’s airports, bridges, tunnels, roads and other infrastructure, something both Democrats and Republicans agree should be done. The country needs a full $3 trillion in infrastructure over the next decade. The $1 trillion plan revealed by Trump’s economic advisers relies heavily on public-private partnerships, and private equity firms are lining up for these plumbing investments. In the typical private equity water deal, for example, higher user rates help the firms earn annual returns of anywhere from 8 to 18 percent – more even than a regular for-profit water company might expect. But the price tag can come as a rude surprise for local ratepayers.

Private equity investment now generates an average return of about 11.8% annually on a 10-year basis. For infrastructure investment, those profits are made on tolls and fees paid by the public. Even at simple interest, that puts the cost to the public of financing $1 trillion in infrastructure projects at $1.18 trillion, more than doubling the cost. Cities often make these desperate deals because they are heavily in debt and the arrangement can give them cash up front. But as a 2008 Government Accountability Office report warned, “there is no ‘free’ money in public-private partnerships.” Local residents wind up picking up the tab.

There is a more cost-effective alternative. The conservative state of North Dakota is funding infrastructure through the state-owned Bank of North Dakota (BND) at 2% annually. In 2015, the North Dakota legislature established a BND Infrastructure Loan Fund program that made $50 million in funds available to communities with a population of less than 2,000, and $100 million available to communities with a population greater than 2,000. These loans have a 2% fixed interest rate and a term of up to 30 years. The proceeds can be used for the new construction of water and treatment plants, sewer and water lines, transportation infrastructure and other infrastructure needs to support new growth in a community.

If the Trump $1 trillion infrastructure plan were funded at 2% over 10 years, the interest tab would come to only $200 billion, nearly $1 trillion less than the $1.18 trillion expected by private equity investors. Not only could residents save $1 trillion over 10 years on tolls and fees, but they could save on taxes, since the interest would return to the government, which owned the bank. In effect, the loans would be nearly interest-free to the government.

New Money for Local Economies

Legislators in cash-strapped communities are likely to object, “We can’t afford to lend our revenues. We need them for our budget.” But banks do not lend their deposits. They actually create new money in the form of bank credit when they make loans. That means borrowing from its own bank is not just interest-free to the local government but actually creates new money for the local economy.

As economists at the Bank of England acknowledged in a March 2014 report titled “Money Creation in the Modern Economy”, the vast majority of the money supply is now created by banks when they make loans. The authors wrote:

The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. . . . Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. [Emphasis added.]

Money is not fixed and scarce. It is “elastic”: it is created when loans are made and extinguished when they are paid off. The BOE report said that private banks now create nearly 97 percent of the money supply in this way.

Richard Werner, Chair of International Banking at the University of Southampton in the UK, argues that to get much-needed new money into local economies, rather than borrowing from private investors who cannot create the money they lend, governments should borrow from banks, which create money in the form of deposits when they make loans. And to get that money interest-free, a government should borrow from its own bank, which returns the interest to the government.

Besides North Dakota, many other states and cities are now exploring the public bank option. Feasibility studies done at both state and local levels show that small businesses, employment, low-cost student loans, affordable housing and greater economic stability will result from keeping local public dollars out of the global banking casinos and in the local community. Legislation for public banks is actively being pursued in Washington State, Michigan, Arizona, Philadelphia, Santa Fe, and elsewhere. Phil Murphy, the front-running Democratic candidate for New Jersey governor, is basing his platform on a state-owned bank, which he says could fund much-needed infrastructure and other projects.

New Money for a Federal Infrastructure Program

What about funding a federal infrastructure program with interest-free money? Tim Canova, Professor of Law and Public Finance at Nova Southeastern University, argues that the Federal Reserve could capitalize a national infrastructure bank with money generated on its books as “quantitative easing.” (Canova calls it “qualitative easing” – central bank-generated money that actually gets into the real economy.) The Federal Reserve could purchase shares, whether as common stock, preferred stock or debt, either in a national infrastructure bank or in a system of state-owned banks that funded infrastructure in their states. This could be done, says Canova, without increasing taxes, adding to the federal debt or hyperinflating prices.

Another alternative was proposed in 2013 by US Sen. Bernie Sanders and US Rep. Peter DeFazio. They called for a national infrastructure bank funded by the US Postal Service (which did provide basic banking services from 1911 to 1967). With post offices in nearly every community, the USPS has the physical infrastructure for a system of national public banks. In the Sanders/DeFazio plan, deposits would be invested in government securities used to finance infrastructure projects. Besides financing infrastructure without raising taxes, the plan could save the embattled USPS itself, while providing banking services for the one in four households that are unbanked or under-banked.

Reliance on costly private capital for financing public needs has limited municipal growth and reduced public services, while strapping future generations with unsustainable debt. By eliminating the unnecessary expense of turning public dollars into profits for private equity interests, publicly-owned banks can allow the public to retain ownership of its infrastructure while cutting costs nearly in half.


Public banks help communities thrive. Why aren’t there more?

Since the 2008 financial crisis, the idea of creating a public bank has been proposed in dozens of states across the country. Cities including Santa Fe, Philadelphia, San Francisco, and Seattle are also exploring the option.

Progress has been slow and the only state so far to take concrete action is Vermont, which allows up to 10 percent of its cash balance to be used for lending and investments. But momentum has picked up with a proposal by Phil Murphy, a leading New Jersey gubernatorial candidate, for a public bank as a centerpiece of his economic platform. This proposal was received favorably by the state’s largest newspaper, The Star-Ledger.

New Jersey has approximately $12 billion of public funds invested in large banks such as Wells Fargo, Capital One and Bank of America. In 2015, Bank of America made only three small business loans in the state. Characterizing New Jersey as “the most under managed asset I’ve ever seen,” Murphy wants public deposits reinvested in the state. This plan is one component of Murphy’s broader objective to stabilize state finances and revive New Jersey’s reputation as an investment hub for technology and innovation.

Under this proposal, the state and potentially municipalities would deposit their revenues with the public bank. That capital would be leveraged into credit to support economic development and public investments. The bank would support community banks by acting as a secondary lender to help them compete with big banks. This, in turn, helps small businesses and local economies as community banks account for most small business loans.

The bank’s profits are returned to the state through dividends. The state could borrow at reduced or zero interest for projects such as infrastructure improvements. Interest payments and fees to private banks potentially double the cost of such government projects, according to Ellen Brown, founder of the Public Banking Institute.

Public banking is nothing new. It accounts for 40 percent of banking worldwide. Infrastructure investment funds are already used in more than 30 states nationally. But currently the only public bank in the U.S. is the Bank of North Dakota (BND), which has operated for almost 100 years. Following the 2008 crisis, North Dakota had the lowest national default and unemployment rates and was the only state reporting major surpluses. The bank’s success has inspired public bank proponents.

BND’s success model includes prudent management, insulation from political influence, and a supporting role on behalf of local financial institutions. It wisely avoided subprime lending. The bank’s state-appointed advisory board consists of finance experts, its executives are experienced bankers, and routine lending decisions are made by professionals.

Most BND loans originate from community banks and credit unions. Over the last decade the bank has reported record earnings, with more than $130 million in earnings and an impressive 18 percent return on investment in 2015. According to a 2011 study, two-thirds of the bank’s profits were returned to the state over a 35-year period and it responds more quickly during natural disasters then the federal government.

BND primarily services government agencies and local financial institutions. It deals directly with customers in only limited circumstances, such as student loans (the bank issued the nation’s first federally-insured student loan in 1967. Accordingly, the bank functions as a partner, not competitor, with community banks. For example, in addition to providing liquidity and secondary lending, BND provides letters of credit that allow local banks to accept deposits and manage funds for municipalities and counties.

Consequently, public banking can act as a counterweight against too-big-to-fail consolidation. Ever since the Riegle-Neal Act of 1994 allowing interstate banking, consolidation has increased dramatically. This trend only accelerated following the 2008 financial crisis. Since 1996, the number of banks nationally has declined from 11,454 to 5,170. More troubling, the seven biggest banks control 56 percent of all industry assets. This consolidation reduces competition and potentially increases systemic risk. It also explains why the bank lobby opposes public banks, employing “free market” rhetoric while benefiting from government largess.

The potential for public banks to counter big bank consolidation is multifaceted. In addition to providing an alternative depository for public funds and source of credit for public entities, support for community banking allows local financial institutions to compete with big banks. Competition and decentralization are worthy policy goals that contribute to stability. Indeed, North Dakota has the highest number of community banks per capita in the nation and weathered the 2008 crisis better than most.

The next governor of New Jersey will confront major economic challenges: slow growth, poor business climate, aging infrastructure, an underfunded pension system, and the reality of being the third-most indebted state in the nation. Under Gov. Chris Christie, the state’s credit rating has been downgraded a staggering 10 times.

In conjunction with other measures, a public bank could be part of the solution. The 2017 gubernatorial election may very well give Phil Murphy the opportunity to demonstrate that public banking works beyond North Dakota.

Douglas Singleterry is counsel at Vasios, Kelly & Strollo, where is specializes in civil litigation. He is co-author of the New Jersey Uniform Commercial Code and has served on the North Plainfield Borough Council since 2005. Zenon Christodoulou is a management consultant and adjunct professor at William Paterson Universitys Cotsakos School of Business.