According to the Federal Reserve, large, white-controlled banks like Bank of America, JP Morgan Chase and Wells Fargo with $6 trillion in total assets, are the largest suppliers of money. Black banks, by contrast, have only $4 billion in assets, a minuscule amount compared to the big banks. Historically African Americans have been “red-lined” when applying for loans and mortgages. During the great recession of 2007, 35% of African Americans lost their homes because of “liar loans” provided to them by the banking industry.
How can the African American community avoid further victimization and be serviced equitably? This is where public banking comes in. As the name suggests, a public bank is a commercial bank that is government-owned and controlled. Just like a private bank, it takes deposits and makes loans. However, unlike typical Wall Street banks, public bank loans are limited to those that serve its community, such as affordable housing, education, and minority business loans. A public bank can also provide inexpensive financing for local infrastructure and green energy.
Public banks won’t be as large as Wall Street banks, but they can be large enough to make a difference. Here in the Bay Area, the revenue collected by local governments and a small percentage of the cash held by local tech companies could provide a public bank a multi-billion dollar deposit base, in other words, enough to finance billions in loans every year.
A public bank can make a monumental difference. Almost everyone who wants to buy a house must afford the monthly payment on the standard 30-year mortgage. If you request a $500,000 mortgage, you will pay 5% interest, with a monthly payment of $2,700 a month. The public bank could possibly do what Japan and Sweden have already done, which is offer mortgages with terms much longer than 30 years. A 50-year mortgage at 3% interest would result is an affordable $1,600 a month payment, resulting in a lot more people now able to qualify for housing. Concerns regarding a longer term mortgage resulting in more interest can be thwarted by refinancing, exchanging the 50-year mortgage for one with a shorter term.
Currently, there’s one public bank in the U.S., the Bank of North Dakota. Established over 100 years ago, it works with small local banks to provide student loans, farm credit and other types of financing to North Dakota residents. It’s been a solid success that hasn’t gone unnoticed.
Late last year, Governor Newsom signed legislation authorizing 10 public banks in California. But despite the Bank of North Dakota’s success, the strong track record of public banks in countries like Germany and the obvious need for alternatives to big Wall Street banks, it’s not clear that local officials will immediately embrace the idea. One reason is simply that it’s new.
So, it’s up to us. We have to let our elected leaders know that one of the best ways to solve our community’s lack of money is to create public banks specifically designed to help us finance our way to prosperity.