By: Erica Stanojevic, July 18, 2019
Cities and counties hold billions of dollars of public money in Wall Street banks. Legally, these corporate banks own and control this money, which they use to finance harmful industries including: private prisons, immigrant detention centers, weapons manufacturers, fossil fuel pipelines, and other investments that prioritize corporate profit over people and the planet. These too-big-to-fail banks are also engaged in risky and fraudulent practices that crashed the global economy in 2008. That’s why the California Public Banking Alliance (CPBA), a coalition of organizations and activists in California, is working to create socially- and environmentally-responsible municipal and regional public banks. Public banking serves as a powerful tool to keep taxpayer dollars in local communities.
CPBA is advocating for legislation that will give municipalities the power to create publicly-owned banks across California. California Public Banking Assembly Bill 857 (AB 857) has sailed through the Assembly and is now in the Senate. It will establish a regulatory framework for a system of public banks in the state that includes: a socially-responsible charter, anti-corruption clauses, and 100% transparency. Public banks promote an independent and publicly-governed finance system accountable to the people they serve. Unlike privately-owned banks, which prioritize shareholder returns, public banks leverage their deposit base and lending power to benefit the public.
Bill AB 857 is written so local governments create structures that respond to the needs of their communities. Often, when a public infrastructure project is funded, about half the money taxpayers spend goes to repaying bonds. This money includes both interest and bank fees. All this is necessary because local tax money will be collected slowly over several years, whereas a project requires large immediate funds to get started. A public bank need not charge high rates, reducing infrastructure costs, while the more modest interest charged is funneled back into the community (instead of to Wall Street investors).
A charter can require ethical investing. After the protests at Standing Rock, many cities stated their intent to divest from oil, yet had no way to do so. Public banks can be required not to invest in fossil fuels or war industries. With a strong charter and continued public oversight, we can use public banking as a mechanism to divest from war. Instead, communities can choose to focus investment on regenerative practices.
Public banks are successful. The Bank of North Dakota weathered the economic downturn partly due to its ability to partner with credit unions and local banks to promote economic development within the state. A strong network of public banks in Germany has helped fuel a renewable energy boom. Public banks created under AB 857 would need to get FDIC (federal) insurance, and have the same collateralization requirements that private banks do.
By charter, credit unions have been limited in the amount of money they can manage, so they are not in a position to accept and handle large deposits, like all the property taxes collected by a county. They can, however, along with local banks, work as the “brick and mortar” service centers for public money. This would expand the role of credit unions and local banks. AB 857 requires that retail services provided by a public bank be conducted in partnership with local financial institutions, unless there are no credit unions in the area.
It is time we change our relationship with the Earth. By empowering our local communities to be conscious about how we use our financial systems, we can divest from war and strive to heal the Earth. We have the opportunity to create another banking option through locally-controlled, socially- and environmentally-responsible public banks, enabling cities and counties to recapture public dollars, while having a say over financing our own communities.