The Standing Rock movement in 2016 brought together Indigenous activists from across the nation to fight against the Dakota Access Pipeline. One of the demands of this movement included divestment from Wells Fargo, a bank that was funding development of the pipeline. This brought into the spotlight one of the biggest issues concerning economic justice in the United States: big banks. More specifically, big for-profit banks that the government uses to invest public money into Wall Street, rather than local communities. Some of those investments include the fossil fuel industry, private prisons, immigrant detention centers, and more.
The divestment movement is mostly about getting those government investments—public employee pension funds, for example—out of the big banks. The question then becomes where to put them. Some economic justice activists say the answer is public banking.
In September, the California State Legislature passed Assembly Bill 857, a law that would allow a regulatory framework for public banking in the state. This would allow the establishment of banks that hold the government’s money and include socially responsible charters, anti-corruption clauses, transparency, a board that includes community development professionals, and prohibitions on retail locations and on competing with community banks and credit unions. On Oct. 2, Gov. Gavin Newsom signed it into law. Newsom has been a supporter of public banking since his 2018 campaign. It’s expected to take one or two years, at least, to set up a charter for such a bank.
The only public bank in the contiguous United States today is in North Dakota. This public bank is not a new phenomenon; it was established during a populist movement in 1919. The credit system during the time was not set up in a way that supported farmers, so for them to be able to receive farming loans, the state created what is now known as the Bank of North Dakota.
“North Dakota was the only state that escaped the credit crisis,” says Ellen Brown, founder and president of the Public Banking Institute. “It never went in the red, [had] the lowest unemployment rate in the country, the lowest foreclosure rate at that time.”
According to the bank’s 2018 Annual Report, it recorded its 15th consecutive year of record profit in 2018, with $159 million in income and $7 billion in assets. It maintains an investment portfolio of $1.9 billion.
Opponents of public banking have said that public banks are too risky and could waste taxpayer dollars. That was the position of the Los Angeles Times editorial board against a 2018 public initiative that would have allowed public banking charters in that city. (Voters later rejected the measure.) The Times also said public banks would compete with smaller private banks.
But the Bank of North Dakota, widely seen as a model for successful public banks, only competes with Wall Street as a repository of government funds. It instead partners with local private banks when small businesses need big loans, and steps in to secure the larger loans.
At the time of the Standing Rock protests and the clamor for divestment, many individuals were able to switch their personal accounts to nonprofit credit unions. But larger entities, such as governments, have fewer options. While credit unions are an excellent alternative to privately owned banks for individual accounts, they don’t have the capacity to handle the large government accounts of cities and states. To begin, credit unions are owned by their members, while public banks are owned by a government. Credit unions also have a less capital to issue loans.
For example, in February 2017, the Seattle City Council voted to divest the city’s banking services from Wells Fargo because of its ties with the Dakota Access Pipeline, but in the end was unable to find an alternative that could process about $3 billion a year in government revenue. Three months later, the city renewed its banking relationship with Wells Fargo.
While few historical examples of public banking exist, one stands out. The Freedman’s Savings Bank was originally founded for freed former slaves and African American veterans to have a place to build their savings. The Oxford African American Studies Center writes that the bank served its purpose for a short time, but then moved its headquarters from New York to Washington, D.C. After a change in leadership and several dubious investments, the Freedman’s Bank went into debt and was forced to shut down.
Public banks are run like nonprofits in that they have boards made up of members of the community.
Debbie Notkin, who works with the California Public Banking Alliance, says that by law, all corporations, which includes private banks, are legally obligated to maximize profit. Public banks are not held to this expectation, however, and are instead mandated to serve their communities.
Public banks are run like nonprofits in that they have boards made up of members of the community. Those board members are people with clear credit and experience in business. While this raises the question about who might end up on these boards, Notkin says that advocates like her are “committed to wide representation, uplifting marginalized voices,” and staying true to their values, such as fighting against fossil fuels and Wall Street.
Therefore, Notkin says, community investments have unlimited possibilities, including affordable housing, saving people from foreclosure, making student loans more affordable, and creating more infrastructure to defend against the effects of climate change, such as more dikes and dams for coastal areas.
The Public Banking Institute’s Ellen Brown has been referred to as the godmother of the public banking movement. She is the author of The Public Bank Solution: From Austerity to Prosperity and runs The Web of Debt blog. She sees the Bank of North Dakota as a model for public banking systems across the nation.
“Public funds are currently invested in Wall Street banks and deposited in Wall Street banks. It’s not the government that keeps our money, it’s private banks,” Brown says. Furthermore, these public funds are not used to improve communities. For example, many large private banks might be more interested in putting $5 billion into a Wall Street investment bank and reaping the profits from that arrangement, rather than making a $50,000 loan to a local business. Private banks often choose Wall Street, because it is where they can maximize their returns on investments. Connections to their local communities aren’t a consideration.
The community implications of public banking could be huge.
Los Angeles-based public banking advocate Trinity Tran is the co-founder and lead organizer for three volunteer groups that support public banking in Los Angeles: Public Bank LA, Revolution LA, and Divest LA.
“Our current banking model is based on extraction,” she says. She also spoke on the Bank of North Dakota, saying that it has existed for 100 years, and it is currently in its 15th consecutive year of profit even though it is not mandated to be profitable, but to serve the community.
Sushil Jacob, a senior staff attorney for economic justice with the Lawyers’ Committee for Civil Rights of the San Francisco Bay Area, was instrumental in drafting the bill Gov. Newsom just signed.
Jacob says that while it is important to pressure the federal government, the real changes are going to take place at the state and local level, which is where public banks come into play. They’ll be necessary to provide funding for local projects as the economy transforms from one based on extractive industries to one that supports democracy, the environment, and community well-being, especially in low-income communities of color and other marginalized groups.
In addition to supporting that transformation to what is called the Just Transition framework, public banking would also be necessary to provide capital for projects under the proposed Green New Deal.
“By creating a mechanism in which cities and counties can divest from their current banks and put them into new banks, and have those banks be tasked with only lending to things that are going to be a part of the new economy, that creates a local financing mechanism for a just transition,” Jacob said.