The response to COVID-19 has laid bare, once again, the glaring economic inequalities we live with every day. An essential new institution is public banking — new to most of us in America, but a proven institution globally for the past few hundred years.
If cities had public banks, they would be able to multiply their impact by leveraging the bank’s capital. This would allow cities to quickly and efficiently deploy recovery efforts, distribute assistance and make low-interest loans to small- and medium-sized businesses to help them get back on their feet.
The COVID-19 crisis is likely to last for many months or years, bringing about profound changes to our society. While many may wish for a rapid return to “normal,” let us remember what has been “normal” in the past:
• People drowning in debt to pay medical bills, fund college educations, and simply survive;
• Global climate crisis glaring at us with rapidly melting glaciers, fires, droughts and tumultuous floods;
• Rampant numbers of unhoused living on the streets;
• Thousands at risk of losing their homes to evictions and foreclosures;
• 40 million Americans living below the poverty line, with 40% unable to weather a $400 financial emergency.
In 2019, the California Public Banking Alliance ushered through the California Legislature historic legislation, AB 857, the Public Banking Act. This law allows municipalities across the state to set up public banks in their communities. What does this have to do with COVID-19 or other disasters that may strike?
If public banks existed today, they would be a ready source of funds in our communities to help people and businesses sustain themselves through these hard times and rebuild. Public banks, like all banks, are able to multiply the impact of the dollars on deposit through making multiple loans. They provide the most efficient means of expeditiously deploying scarce funds into the community. If cities had public banks, they would be able to multiply their resources quickly to help with recovery efforts.
Public banks offer other important benefits Wall Street banks are unable to deliver. Public bankers are local and accountable to the people that live in their communities. They are more responsive to those most in need following disasters. If there were public banks in our communities today, rescue funds from the Federal Reserve Bank would be distributed through them focused on rebuilding communities rather than rebuilding astronomical profits of Wall Street banks.
Public banks will invest funds into making communities more resilient to disasters. They will be obligated to fund affordable housing minimizing the number of unhoused who are most vulnerable. Public banks will be responsive to community demands for capital improvements such as hospitals and community clinics to provide accessible healthcare for daily needs, as well as for disaster preparedness.
Public banking will enable a return to conservative banking practices focused on realistic projects that build communities, rather than risky, remote projects, like drilling for oil in the Arctic, that may reap huge financial profits but entail enormous environmental costs and entail huge financial risk.
Financing investments for sustainable energy production, conservation and delivery may not be sexy with extraordinary returns, but it is financially secure and environmentally sound. Political leaders must use emergency powers to rapidly create public banks able to rebuild resilient communities capable of thriving in a “new normal” future.