What if the People Owned the Banks?

What if the People Owned the Banks?

The case for public banking.


After Silicon Valley Bank failed earlier this month—the largest bank to do so since Washington Mutual in 2008—blame was rightfully placed on a number of culprits: congressional deregulation, reckless Federal Reserve policy, and of course, absurd mismanagement from the board of the bank itself.

But while it makes sense to ensure those responsible for SVB’s failure face consequences, it would be unwise to dismiss the bank as an “outlier,” as Federal Reserve Chair Jerome Powell called it last week. Because while SVB has its idiosyncrasies, it was the 563rd bank to fail in the United States since 2001, and one study found over 180 more banks could follow suit if they faced a similar run on their assets.

This raises a simple question: Is this banking system the best we can do? New York progressives see room for an alternative. Even before this latest bank failure, they were pushing for the passage of the New York Public Banking Act—one of many proposals across the country that could transform American finance by introducing a public banking option.

As the name implies, public banks are owned by the government, rather than private investors. Some proposed public banks would compete directly with commercial banks, offering services like debit cards, ATM access, and direct loans to consumers. Others would primarily interface with local government, businesses, and other financial institutions. But by any definition, public banks are held accountable to the public—not stockholders.

Public banks can save communities money, and prioritize community needs. For example, they can offer low interest rates on loans for public projects. Per the Public Banking Institute, local US governments currently spend $160 billion a year on loan interest. That money—which could otherwise build parks, fund schools, and repair bridges—is effectively a wealth transfer from taxpayers to corporate bankers. To whatever extent a public bank profits, that money is reinvested into the community. Existing public banks around the world demonstrate this. Argentina’s Banco Ciudad de Buenos Aires has branches in low-income communities where no private bank offers services; ATB Financial (based in Alberta, Canada) has provided crucial support for local businesses during periods of economic hardship.

Public banks could also reduce racial disparities in lending. From mortgages to small-business loans, Black Americans are consistently less likely than white Americans to have applications approved by private banks; such denials are often justified by profit-motivated rationales. As Harvard Law School professor Christine Desan put it: “There are many borrowers who don’t fit the metric that makes them an obvious candidate for a loan from a commercial bank.… These borrowers tend to be shut out even though they would contribute enormously to our economic development.”

And public banks aren’t too big to fail—they’re too stable to fail. They don’t have incentive to make the sort of high-risk investments that historically portend doom for commercial banks. (The downside, sadly, is that a CEO of a public bank is unlikely to become a billionaire.)

These benefits aren’t just theoretical, or limited to international case studies—there’s already a state-run general-service bank in the US that has consistently turned a profit since it was founded over a hundred years ago. And of all places, it’s in North Dakota.

At the turn of the 20th century, North Dakota’s farmers faced crippling droughts, devastating winters, and predatory business practices from out-of-state grain dealers. When they turned to private banks for assistance, they were met with jacked-up interest rates—up to 12 percent—on farm loans. During this crisis, socialist organizer A.C. Townley founded the Nonpartisan League, a new political party that won full control of the state government by 1918. The following year, the newly elected coalition established the Bank of North Dakota (BND)—and it has consistently served the state’s residents since.

During the Great Depression, the BND ensured teachers were paid full wages. In 1967, the bank issued the first federally insured student loan in the country. In 2011, it funded recovery for farmers impacted by flooding. And while the BND is currently the only active public bank in the US, progressives have been pushing for a number of cities and states to start their own.

In 2019, California made it legal for its cities and counties to establish public banks; in February of this year, a working group in San Francisco released a draft plan to do just that. Meanwhile, in Chicago and Philadelphia, multiple mayoral candidates have expressed support for public banking. And the federal Public Banking Act introduced by Representative Rashida Tlaib in 2020 would establish infrastructure and guidelines to make it easier for localities to create such banks.

Back in New York, the clock is ticking on the state’s Public Banking Act. With the state budget due April 1, the bill’s congressional supporters are pushing for its inclusion. And a broader coalition has written a letter to state congressional leadership citing the New York–based Signature Bank—which failed in the direct aftermath of SVB’s collapse—as a cautionary tale: “The sudden meltdown of Signature Bank…should serve as a wake-up call for the state,” it reads. “The New York Public Banking Act would pave the way for publicly accountable banks that engage in equitable and responsible lending.”

From New York to California, progressives are taking a page from North Dakota—by fighting for a forward-looking, people-powered alternative to a financial system that has served too few for too long.

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