What is a Public Bank?
A Public Bank is a bank owned by a national, state, or local government in which all of its funds, taxes, and revenues are deposited. It is mandated to serve a public mission that reflects the values and needs of the public it represents.
What is its Purpose?
A commercial bank is in business to make profits to enrich shareholders, whereas a public bank is in business to make and leverage money to serve the needs of the people of the community it serves and to make low cost loans to finance civic needs.
A public bank has the same privilege a commercial bank has – to make loans for up to nine times its actual deposits. It can also borrow money through the Federal Reserve System at very low interest rates. This allows it to make low cost loans for many civic projects.
What Types of Benefits Can a Public Bank Provide for a Community?
A public bank would provide any number of public benefits to the community, for example:
- Low-interest loans for infrastructure projects.
- Low-interest loans for public housing, both new construction and capital improvements.
- Online depository banking services to under-banked and unbanked residents where private banking has not met their needs.
- Commercial loans to businesses, but only in partnership with Community Banks and Credit Unions.
- Creating and supporting Community Development Financial Institutions (CDFIs) to drive community revitalization.
- Other community redevelopment goals and benefits as chosen by those governing the bank.
How Does a Public Bank Serve the Community?
Rather than deposit its money in commercial banks and borrow money at high-interest rates and fees, a city, county, or state can deposit some or all of its money in its own bank. The bank can use those deposits to leverage loans back to the community at rates of 1% or 2% for a variety of public purposes. On average, roughly 45% of the total cost of infrastructure projects, for instance, goes simply to cover bank interest and fees on loans.
While commercial banks can invest in any projects they choose, a public bank would invest only in loans serving the needs of the immediate community.
It would not compete with local community banks for deposits or in making loans, but instead would make loans in partnership with community banks and credit unions, making them stronger and increasing total lending.
A public bank could immediately start saving money for its government by refinancing its debt at a lower rate of interest. Refinancing debt would also produce immediate income for the bank while it builds up lending in other areas
Do Other Public Banks Exist Now?
The Bank of North Dakota is the largest of a few public banks in the United States and a good example for new public banks. Founded in 1919, it manages the state income and lends it to serve the needs of the people of North Dakota. However, it also regularly makes the highest return on equity of all U.S. banks. It regularly transfers these profits to the people of the state through low interest loans, increased services or regular deposits to the state general fund (which decreases taxes).
California also recently ratified a measure to allow communities to build their own public banks. Since this legislation passed many communities have created their own banks: Los Angeles, East Bay, Santa Barbara, and San Diego are some of the first.
Facebook: Colorado Public Banking Coalition