The COVID-19 crisis is shining a bright and unforgiving light on the glaring economic and racial inequalities we live with every day. Public banking is a major step toward a more just and equitable world.
This crisis is the opportunity for cities and counties to start public banks, because only banks can multiply their impact by leveraging their capital: if our bank has $10 million in equity, it can loan up to $100 million to small businesses and others suffering from the economic fallout from COVID-19.
All banks do this, but private banks are legally bound to maximize profits for their shareholders, most of whom are already wealthy. Public banks will be bound by their missions and their charters, and overseen by their community-based boards of directors, to maximize recovery for the people and businesses who have been longest overlooked.
Public banks will also be in a position to accept the zero-interest loans now made available only to banks from the Federal Reserve.
Cities and counties with public banks will be able to deploy economic recovery efforts quickly and efficiently, because they know their communities intimately. In partnership with community banks and credit unions, these banks can prioritize loans to individuals, and to small- and medium-sized businesses owned and run by people of color and other vulnerable groups.
They can also help cities and counties plan for the future by financing storehouses of necessary equipment, infrastructure improvements, and other urgent and long-term needs. Even better, the public bank’s profits go back to the cities and counties that invest in the bank — none of the money leaves our neighborhoods for the pockets of rich shareholders and overpaid bank officers on Wall Street.
In 2019, the California Public Banking Alliance introduced the Public Banking Act (AB 857), passed by the Legislature and signed into law by Gov. Gavin Newsom. This historic law lays out the pathway for local public banking across the state.
Public banking will be new to California, and to most of America, but has a centuries-old global track record of success. The only major public bank in this country, the 100-year-old Bank of North Dakota, returned 18% to the state’s general fund last year.
The Sparkassen public banks in Germany have thrived for 200 years and started giving loans to COVID-affected small businesses weeks ago.
Public banks will return us to old-fashioned, boring banking–risk-averse, sensible banking practices focused on realistic projects that build communities. They won’t fund fossil fuel pipelines, private prisons or subprime mortgages. When the COVID disaster is over, they can and will continue financing economic justice and equity, and making ordinary people’s lives better.
Best of all, the money distributed through public banks for reconstruction doesn’t stop performing when the loans are paid off: the banks’ profits go back into our public coffers to be used again to meet our needs.
Now the COVID-19 crisis is forcing elected officials at all levels to see that fast-tracking public banking is a crucial strategy for saving our local economies and our communities.
The day we get the first California public bank up and running, we will have a ready source of funds to help people and businesses sustain and rebuild themselves through these hard times, without repeating the mistakes of the last 40 years. It will multiply its capital and equity up to 10 times, while multiplying its positive impact on people of color and others who have been systematically marginalized, because — unlike Wall Street banks — prioritizing those who need it most will be built into its DNA.
COVID-19 is doing great harm. At the same time, it is pointing the way to a more equitable world and a regenerative economy. The time for public banking is now.
Debbie Notkin is a founding member of Friends of the Public Bank East Bay, a member of Strike Debt Bay Area, and a member of the board of Home-All. She lives in Oakland and is committed to economic justice as a form of racial justice.