Public banks are government-owned financial institutions that operate with the goal of serving the needs of their local community. They offer a range of services, such as lending for affordable housing, small business financing, and infrastructure development, that are tailored to meet the specific needs of the community. Unlike private banks, whose primary focus is on maximizing profits for shareholders, public banks prioritize the public good and supporting the community. This allows them to use their resources, such as deposits and lending capabilities, to benefit local residents and businesses rather than prioritizing profits for private shareholders. This focus on serving the community allows public banks to play a vital role in promoting economic and social well-being in their regions.

Read our Resource Booklet to learn more about public banking.

The goal of the California Public Banking Alliance (CPBA) is to advocate for the establishment of public banks in California that prioritize social and environmental responsibility, regional economic development, and adherence to transparent, ethical, sustainable, and regenerative investment practices. By forming partnerships with local community banks and credit unions, these public banks will also enhance the capabilities of existing financial institutions and serve the needs of all members of the community, particularly those who are underserved.

Public banks will primarily serve municipal service providers, such as school districts and public utility commissions, and partner with local community banks, credit unions, and CDFIs to fund projects that meet community needs. These banks will also create investment programs that align with their municipality’s economic development plans, such as housing lending (especially affordable housing), enterprise lending (small and medium size businesses), and infrastructure spending that is financially feasible and environmentally sound. Public money will be recycled locally, rather than being sent to climate-destructive projects and shareholder returns, and public banks will support the work of local financial institutions while focusing on meeting the financial needs of municipal agencies.

There are two main reasons why California’s local public banks will not receive deposits from individuals. Firstly, per AB 857, they are not meant to compete with existing local banking services and will instead support community banks and credit unions by backing loans and evaluating local projects for investment. Secondly, these banks will not have retail branches and will only handle the funds of municipal agencies.

California is facing a severe shortage of affordable housing, with many residents paying over 50% of their income on rent and utilities. This is one reason the state has among the highest numbers of unhoused people in the nation. Public banks can help alleviate this crisis by providing loans to develop affordable housing, including construction loans and long-term bond and mortgage loans for multi-unit housing developments. By partnering with local community banks, credit unions, and community development financial institutions (CDFIs), public banks can potentially become significant suppliers of long-term affordable housing credit through partnership loans. Public banks could also fund property acquisition programs to acquire existing rental properties and place them into permanently affordable cooperative housing arrangements and land trusts.

In Establishing the Municipal Bank of Los Angeles: A Conceptual Framework, Karl Beitel notes, “The primary advantage offered by a Municipal Bank is the creation of a dedicated, multi-purpose entity that combines a multitude of capacities required to identify, underwrite, and originate low-cost, high-impact credit, enabling the City to pursue more socially beneficial and economically just forms of economic development.”

A July 2021 NBC Bay Area special explained one aspect of the glacially slow process of building affordable housing “Developers have to put together a jigsaw puzzle of funding from government agencies and private investors before they can build. They say that process can take up to a decade.” This observation is supported by the research done for the Public Bank East Bay viability study and the HR&A Team Lending Gaps and Priorities Analysis report for the San Francisco Public Bank task force. Public banks offer a smooth pathway to funding and an alternative to reliance on private investors and the private, for-profit housing market. They can help ensure that future housing development linked to publicly funded transit investments does not result in the extremely common widespread displacement of residents in predominantly African-American, Asian, and Latino working-class neighborhoods. Public banks can also contribute by co-lending with local private banks and encouraging and back-stopping investments in socially responsible local housing initiatives.

California public banks, as mission-driven institutions, will prioritize racial equity and serve the needs of underrepresented communities by including these commitments in the bank’s mission statement and charter. In part, public bank directors will be chosen based on their understanding and support for racial equity and combating systemic racism. Boards of directors whose ethnicity, gender, and class backgrounds reflect the communities they serve are a rarity in the traditional banking industry–public banks can buck that trend.

Public banks aim to support racial equity by using their lending capabilities to contribute to affordable housing projects in a targeted and impactful way which could include making loan approval contingent on plans for tenant diversity and community involvement in decision-making during construction. Loans for small businesses can be evaluated with consideration for the specific needs of BIPOC business owners and the importance of their connections to the community. Public banks could also focus on supporting green infrastructure projects in neighborhoods that would benefit the most from them.

All of these initiatives–housing, business loans, and green infrastructure–contribute to the goal of building long-term wealth for BIPOC communities within the public bank’s city or region. This is well-documented to positively impact the health, education, and overall well-being of marginalized communities and their neighborhoods.

A city or region-owned public bank could play a significant role in addressing the environmental crisis and reducing the impacts of climate change by financing clean energy infrastructure, increasing renewable energy lending, and incorporating sustainability investment goals into city redevelopment plans.

The Sparkassen network of regional public banks in Germany has been instrumental in Germany’s transition to a green energy economy, with 73% of investment in renewable energy coming from the public bank sector. This has contributed to renewable energy accounting for 41% of energy production and consumption in Germany (compared to only 11% in the US). German public banks offer interest rates as low as 1% on loans, significantly lower than commercial bank rates.

The worker-owned Banco Popular in Costa Rica is another example of a publicly controlled bank funding environmentally friendly projects, including sustainable water supply systems, residential solar energy panels, hydroelectric energy generation, and energy-efficient retrofitting. Banco Popular is also a socially responsible investor, working with co-ops and public institutions, as well as unbanked and underbanked populations, to provide financial services that are often neglected by large multinational banks operating in Costa Rica.

Learn more about how public banking can support climate justice: Public Banking for Climate Justice.

Providing banking services for the millions of dollars spent on cannabis in California is a highly examined issue. Many legal distributors have no reliable means for the normal financial services needed to run a business. While public banks are often discussed as a potential solution for cannabis businesses, as long as cannabis remains a Schedule 1 federally prohibited drug, public banks are unlikely to be able to offer services to these businesses due to the difficulty of gaining approval from the FDIC and the Federal Reserve System. Federal law will have to change to protect those public banks that choose to serve cannabis businesses from potential prosecution. In addition, public banks are not chartered as banks to private businesses.