by Robert R. Raymond
It may not come as a surprise to hear that the majority of Americans don’t trust the banking system in this country. Only 27 percent of those surveyed in a 2016 Gallup poll said they had “a great deal” or “quite a lot” of confidence in the institution — less than half of the record high set in 1979. And the lack of trust is spread relatively evenly across the political spectrum — it’s not just liberals or those on the left: Almost everyone is fed up with the banks.
And if banking institutions don’t exactly spark joy, their lead characters — morally bankrupt investment bankers whose greed and arrogance almost singlehandedly collapsed the entire country’s economy — certainly don’t spark joy either. It’s an old story: Bankers made obscene amounts of money destroying the economy, we bailed them out, they walked away from it all without a shred of accountability and there’s nothing anyone can do about it. But that’s not where the story has to end. Spurred by the need for an alternative to the for-profit, extractive model of finance exemplified by Wall Street, there is a budding movement in the United States that is working to reimagine banking as an institution that truly serves the public.
Public banking is an old idea, but it has never been very common in the United States. The first and only public bank in the country was founded exactly 100 years ago in North Dakota, and it wasn’t until relatively recently that the idea has begun to find new life in cities and states across the country. Growing largely out of the need for more democratic ownership over capital, the aim of this budding movement is to create a robust public banking infrastructure across the nation that is rooted in the principles of economic, environmental, racial and social justice.
The renewed interest in public banking really took off right after the financial collapse in 2008 as people began exploring the option of moving their money into alternative banking institutions, such as local credit unions and community banks. But despite being useful for small-scale, personal banking, these institutions do not operate on a scale where they are able to handle a city or state’s financial assets — they’re just too small. What was needed was a much larger institution with a clearly defined charter that could take in the municipal deposits of a state — or even a city like San Francisco, whose budget topped $10 billion in 2018.
As public banking advocates began exploring larger-scale solutions, the Bank of North Dakota quickly became a potentially replicable option. Founded by the Nonpartisan League in 1919 during the Midwest’s agrarian populist period, the Bank of North Dakota is the only public bank in the mainland U.S. (American Samoa also has a public bank.) Intended to free the state’s farmers from predatory lenders, the Bank of North Dakota survived a Wall Street boycott and has since become institutionalized within the state’s banking ecosystem.
The Bank of North Dakota has many functions: By law, all state deposits and revenue must go through the bank, which then works with community banks and credit unions throughout the state to provide a number of services, from liquidity and loan guarantees to low-cost student lending to disaster-relief lending and more. It’s proven to be a very successful model.
“The state of North Dakota experienced the financial crisis very differently from any other state,” Thomas Hanna of The Democracy Collaborative, a national research institute dedicated to developing new strategies for a more democratic economy, told Truthout. “It had a low rate of foreclosures, it was the only state in the country that didn’t have a single bank collapse, it had a lower unemployment than many other states and had a better fiscal outlook for state government.”
Of course, the statewide public bank was not able to completely mitigate the effects of the financial crisis in North Dakota. The state’s unemployment rate did rise in 2009, for example. And yet — and this is key to public banking advocates like Hanna — it still remained significantly lower than the national average at that time. Hanna and many others believe that the state bank’s model was responsible for many of the less severe outcomes experienced in North Dakota, and it was around this time that the public banking movement began to explore bringing a similar model to states and municipalities around the country.
“The movement has really taken off like wildfire since then,” Hanna told Truthout. “Many cities in California, cities in Washington, Oregon, Pennsylvania, New York and various other places all across the country are making real advances.”
What makes public banks different from traditional banks is that they are actually accountable to the public — they’re democratic. So the public can not only decide what services the bank provides and where their taxpayer dollars are invested, but they also have a say in what kinds of investments are off limits.
“It was during the Dakota Access Pipeline resistance when many people began to focus on the role that Wall Street plays in financing pipelines and climate change,” Hanna told Truthout. “People started realizing that their money, their local tax dollars were being used to invest in destroying their communities and destroying the planet. So instead of having our money going to purposes that are antithetical to our values, public banking is a way to move toward a more equitable and sustainable economic system.”
Despite gaining traction on both the national and state levels, the push for public banking has really taken off on a municipal level, with cities like San Francisco leading the way.
“We see the need for public banking all over the country right now, but there’s no better example of it anywhere else than in San Francisco, which is one of the wealthiest cities in the world but also one of the most unequal in terms of income,” Kurtis Wu, an organizer with the San Francisco Public Bank Coalition, told Truthout. “We have 7,000 unhoused residents on the streets of San Francisco. Rent is now approaching $4,000 for a one-bedroom apartment. Our infrastructure is crumbling, our public transit system is embarrassing. We see public banking as a mechanism that can really start to redirect capital toward these things.”
The push for a municipal public bank in San Francisco originally came out of the Occupy movement, but really gained momentum during the Standing Rock resistance efforts that targeted the financial institutions responsible for funding the Dakota Access Pipeline. This effort was led by the organization SF Defund DAPL, whose efforts eventually persuaded the city’s Board of Supervisors to pass numerous resolutions calling for a public bank and which compelled the Office of the Treasurer to explore its feasibility.
But the San Francisco Public Bank Coalition isn’t planning to just wait around while the policy seeds for a public bank slowly make their way through City Hall — the group has taken the lead in building a grassroots movement around the initiative. They’ve assembled a broad coalition of groups — including the San Francisco chapter of the Democratic Socialists of America, the northern chapter of the California Nurses Association, the San Francisco Tenants Union and many more — to build public support.
But there are still major roadblocks on the state level that would have to be lifted in order to allow California cities like San Francisco to create municipal banks. At the moment, the only banking licenses available in the state are for commercial banks or credit unions — there are actually no licenses for public banking.
This might change very soon, however, as a bill that would pave the way for municipalities to create their own public banks makes its way through the state legislature. Designed by the California Public Banking Alliance and authored by Assembly members David Chiu (D-San Francisco) and Miguel Santiago (D-Los Angeles), AB 857 passed in the Democrat-dominated state assembly in May and is now making its way through a number of committees before it comes to a final floor vote in the state senate.
“If the state bill successfully passes, we will likely push for the creation of a public bank through a ballot initiative,” Wu told Truthout. “So, putting this issue directly to the voters — so it’s ultimately decided by the people. There’s a fierce urgency to this, and we want to make sure that the timeline keeps up with that. I think that it’s possible for a fully-fledged and operating public bank to be created in five years.”
The movement toward municipal banking is an important part of the push toward a more democratic and accountable banking sector in the United States, but it’s just one component of what advocates see as a broader set of reforms that must be made.
“On the one hand, we should have this robust, local movement for public banking — we should build, from the ground up, small, local banks at the city-county level, at the state level,” Hanna told Truthout. “But I also think that we need to do something about the big Wall Street banks, because they’re going to be a massive impediment to anything that we want to do in terms of economic democracy more broadly.”
This top-down approach is also something that’s being discussed across the country as well, and has gained quite a bit of momentum thanks to high-profile contenders for the Democratic presidential nomination, like Sen. Bernie Sanders (I-Vermont) and Sen. Elizabeth Warren (D-Massachusetts), who have made breaking up the big banks key components of their economic policies. And along the same lines, Senator Sanders and Rep. Alexandria Ocasio-Cortez (D-New York) just recently announced legislation that would build and expand post office banking services while imposing a 15 percent federal cap on interest rates.
“If this movement is going to be successful, we’re going to have to see political action on public banking from the top down as well,” Hanna said. “We’re going to need politicians like Sanders and Ocasio-Cortez to be on board so that if and when we’re able to get into positions of power nationally, we have candidates who are committed and who understand what needs to be done to enable public banking at the federal level.”
Of course, any public bank is only going to be as progressive as the government under which it operates. For example, the fact that the Bank of North Dakota provided a $7 million loan to fund the state’s brutal treatment of Water Protectors during the Dakota Access Pipeline resistance is not lost on organizers like Wu and Hanna. They understand that public banking can never be a success unless it is underpinned by a diverse grassroots movement that puts economic, social, racial and environmental justice front and center.
“Public engagement and community input in this process are critical because there’s no guarantee that a public bank will fund issues like environmental, racial and economic justice,” Wu said. “So we need to create levers for accountability, transparency and self-determination. That’s the only way we’re really going to be able to address these things.”
There are a number of ways to ensure that accountability and transparency are embedded into a public bank from the start, including creating a charter that clearly details what the bank can and cannot invest in, or ensuring that there is community representation on the bank’s board of directors.
Of course, transforming the banking system into one that puts people and planet before profit is a lofty ambition. And as it continues to grow, the public banking movement will likely come into direct conflict with those who are currently profiting from the predatory and extractive banking system. So far, organizers have been focusing much more on the municipal level because they can operate more freely there, somewhat under the radar of the powerful banks whose interests public banking is in direct conflict with.
But at some point, it seems inevitable that the two opposing interests will confront each other in a real and direct way. Will a mobilized, grassroots movement be able to stage a successful insurgency against the forces of concentrated wealth and influence? It’s still very much an open question — one that has come to define much of the 21st century.