December 21, 2016

Hidden ideas: Public banks

Popular Resistance - Santa Fe [is] in the advanced stages of considering the creation of a publicly owned bank. In late October, three City Council members introduced a resolution to take the “final steps to determine” whether a public bank would be feasible. Earlier in 2016, a local advocacy group named Banking on New Mexico released a five-year model projecting that a Santa Fe bank could reduce debt service costs by $1 million a year and earn an annual profit, netting the city over $10 million in the bank’s first five years...

Many sanctuary cities have strong movements for public banks, although not all have taken the steps Santa Fe’s city council has. Oakland’s city council adopted a resolution to study public banking several weeks ago (and reaffirmed their status as a sanctuary city at the same meeting). Philadelphia’s did the same earlier this year. Public banking movements exist in San Francisco, Los Angeles, Portland (Ore.), Denver, Washington D.C., New York City, and Seattle, as well as in states like New Jersey and Vermont, which contain sanctuary cities. If implemented in those cities and states, public banks could provide a financial foundation for municipalities charting their own courses in the face of an aggressive national executive.

Run as a public utility and subject to public oversight, a public bank takes deposits of government money, money which is now typically deposited with Wall Street banks. In turn, the bank’s credit can be used to finance public works and local business and pay a dividend into the public treasury. The Bank of North Dakota, currently America’s only public bank, helps finance that state’s infrastructure, education, and public services, supporting community banks when those banks lend to local businesses. BND provides low-interest loans to towns, farmers, small business startups, and students. For several years, the Bank paid the state an annual $30 million dividend, and stopped doing so only when the state budget was so healthy that the BND was better off retaining the earnings to expand its capital base. Public banks in other countries do the same thing, steering financial support to public goods at low or no interest, providing liquidity and financial security through economic downturns and keeping local economies diverse and vibrant.

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