The case for municipal banks

Salon - A municipal bank is a city-licensed public bank that operates much the same way private banks do: providing regular checking and savings accounts, and making loans to promote policy objectives like affordable housing. There are a lot of ways one might do this: a city can create the bank (as a line-item appropriation) in a mayor’s budget; through an ordinance passed by a city council; or if the citizens vote for it.

Arguably the biggest benefit of municipal banks is that, unlike Wall Street, their priorities are in the community, not in profit. Indeed, municipal banks are one of the best ways to ensure a bank serves local interests and prioritizes community needs. Cities can hardwire economic and social equity goals into the charter of a municipal bank, which makes it a useful tool for ensuring a city serves its most vulnerable residents. People in need are often the most susceptible to budget cuts, so it’s valuable to have a public institution catered specifically to low-income residents.

Karl Beitel, director of the Public Banking Project, describes how municipal banks can play a significant role in creating affordable housing supply. By partnering with credit unions and community development financial institutions, municipal banks can be a major source of funding for city property acquisitions, which can be used to take housing off the private market to be converted into affordable housing. Municipal banks can also coordinate investment from public-sector unions, non-profits and socially responsible investment funds to support additional acquisitions and development.

Municipal banks can offer more competitive interest rates for student borrowers and lower-cost financing of public works. Rather than paying massive interest rates on bonds to individual financiers and banks, municipalities can issue their own loans — meaning the interest payments that would otherwise go to Bank of America or Wells Fargo can instead be reinvested in the city. Municipal banks have the added benefit of being more publicly accountable. Seattle City Council recently voted to cut ties with Wells Fargo over its role in financing the Dakota Access Pipeline. A city can narrowly define the scope of a municipal bank’s charter to make ethical investments that further the city’s policy goals.