Public banks are lending and depository institutions owned by a local agency, such as a city or county, that serve a non-profit public purpose and are governed by a mandate responsive to local needs. These banks leverage their deposit base and lending power to benefit residents with affordable housing, small business loans, modernization of public infrastructure, and other community needs. They differ from traditional financial institutions in that they prioritize serving the needs of the communities they are accountable to, rather than maximizing profits for private shareholders.
California public banks will provide municipal governments with cost-effective depository services and cash management while also supplying funding that supplements government spending. This frees up money for crucial services and reduces the billions of dollars in interest payments that local governments currently pay to private banks, many of which continue to profit during crises like the COVID-19 pandemic. By accepting deposits and handling banking services for local governments and agencies, California public banks also enable these institutions to move their money away from private megabanks that finance activities such as fossil fuel projects, which many cities and counties have voted to divest from. The result is more customized service at a lower cost while keeping our money local and aligning with our values.
BENEFITS OF PUBLIC BANKS
- Keeps public money invested locally.
- Returns profit and interest to local communities.
- Reduces cost of banking to participating agencies, which increases available revenue to spend on other priorities.
- Reflects community values and invests in community-identified priorities.
- Brings democracy and transparency to banking and investment of public funds.
- Uses a bankâs ability to leverage money to benefit the public instead of private shareholders.
- Cuts infrastructure construction costs significantly by providing low-interest loans.
- Strengthens local banks and credit unions by backing their loans and letters of credit.
- Creates a multi-generational source of capital that invests long term to benefit residents and local businesses.
WHY PUBLIC BANKS
- Divest from Wall Street. To divest our state and local treasuries from fossil fuel and pipeline investments and invest using socially responsible standards favoring social justice, racial and economic equity, and environmental protection.
- Cut infrastructure costs dramatically. To provide funding for public infrastructure, and housing for low-income and the unhoused at low interest rates. Public banks allow for greater planning and coordination of local investment to meet community needs.Â
- Safer than private megabanks. Public banks are safer than corporate banks because they do not condone speculative investment strategies driven by profit motives. The Bank of North Dakota survived the Great Depression and the Great Recession of 2008 with humane policies, such as severely limiting foreclosures on farms, that put community welfare above maximizing profits while preserving the stateâs prosperity. Â
- Spur economic growth and create new jobs. Public banks can prop up local economies suffering from financial downturns. Corporate banks withhold investment dollars during downturns due to their demands for excessive profits. Public banks promote the economic stability of their communities with countercyclical investment, making loans to build back economies that have been harmed by unfortunate circumstances. Â
- Save money and generate revenue. Public banks can operate with very low overhead: no advertising, no ATMs, no huge salaries or bonuses, and no branches because local community banks serve as their front offices. Also, they have no shareholders demanding dividends or executives demanding exorbitant salaries.. Public banks provide a means of expanding municipal revenue without increasing taxes. Profits made from loans can be returned to the General Fund.Â
HOW PUBLIC BANKS WORK
- The California Public Banking Act allows municipalities to deposit their funds into public banks, thus removing those dollars from private banks. Government departments, such as the treasurerâs office, can deposit taxes, fees, fines and funds from state and federal programs that they receive into the public bank.Â
- Public banks lend for needed community improvements such as affordable housing, climate-resilient infrastructure, and small business support at low interest rates due to their lower overhead, with the added advantage that profits earned can be returned to the municipalityâs general fund. Â
- Public banks will act as a âmini-Fedâ for their region, assisting local banks and guaranteeing loans. They will be established as âbankerâs banksâ meaning that they will offer loans in concert with community banks and credit unions. When there are public banks, local banks will have greater lending ability and solvency. Â
- Due to the partnership with small banks, credit unions and CDFIs, public banks will enable funding of local projects at lower cost. The self-funding and self-sustaining nature of public banks means they will not imperil state funds or tax dollars.
- Public banks will have experienced bank managers and boards of directors independent from political control to assure that they are not captured by special interests.Â
- Public banks will establish citizen advisories to monitor investments and ensure community concerns are represented.
Read our Resource Booklet
Technical Brief
Learn more about public banking through our Movement Resources.