What is it?
A public bank is one which is owned by the public of a community. It is
- Owned and operated by the city, county, or state.
- Chartered by the state of Colorado.
- Governed by laws passed by the city.
- Operated by banking professionals.
- Serves only the needs of the city.
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 city 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 city 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 to the city’s people the legislature chooses.
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 can deposit some or all of its money in its own bank. The bank can use those deposits to leverage loans back to the city at rates of 1% or 2% for a variety of public purposes. Half of the total cost of some current 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 city and its people.
It would not compete with local community banks, except when invited to co-partner in loan by a community bank.
A public bank could immediately start saving money for a city by refinancing current debt.
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). It is structured differently than a city public bank would be, but it would contribute to the financial and real well-being of its citizens as seen below.
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.
(Above Information adapted from California Public Banking Alliance)
For more technical and detailed information see this informative page from Rocky Mountain Public Banking Institute.