By Jill Cowan
When a ballot measure that would have allowed Los Angeles to start its own public bank was rejected by the city’s voters last year, even proponents of the idea acknowledged that it was a little far out.
Get one of the nation’s largest cities to take the billions of dollars it deposits in big commercial banks and instead park that money in a financial institution that would invest it back into things like affordable housing? It sounded like a progressive pipe dream.
But, as supporters have said, the seed was planted. And now, amid rising anger at the state’s gaping economic inequality, the idea has gotten new momentum with an Assembly bill that is making its way through the state Legislature.
The bill, AB 857, would create a process for local governments to start their own public banks, if they choose to.
“Currently California cities turn over hundreds of billions of taxpayer dollars to our country’s largest Wall Street banks, who invest our money in industries antithetical to our state’s values and policies,” Assemblyman David Chiu, one of the bill’s authors, told me. “This is an idea driven by millions of consumers who in recent years have experienced predatory lending, foreclosures, student loan debt, lack of access to small business capital and having millions of fake bank accounts opened in their names.”
Chiu and others have pointed to the century-old Bank of North Dakota as a potential alternative model. The California Public Banking Alliance listed a roster of endorsements, including from some of the state’s biggest cities.
Still, experts and observers have cautioned that starting a new bank and figuring out the priorities of such an institution could be expensive, time-consuming — and yield questionable returns.
Even if public banks don’t invest in companies that, say, deal in fossil fuels, they still have to invest in things that will grow the city’s money over time. And affordable housing may not make as much money.
The Los Angeles Times’ editorial board slammed AB 857 as setting the stage for “a massive waste of time” and government resources.
The California Bankers Association called it “misguided,” according to CNBC.
And although San Francisco’s recent Municipal Bank Feasibility Task Force Report didn’t take a position on whether city leaders should press ahead with a city-owned bank, it said that starting one “has significant short-term costs,” as well as “significant, but uncertain, payout in the long term.”
David Jette, legislative director for Public Bank LA, said many of the predictions about high startup costs were overblown in part because there isn’t currently a regulatory framework for municipal banks. Chiu’s bill would help solve that, he said.
In any case, he said, something has to change.
“We are the richest country in the history of mankind,” Jette said. “And we cannot solve the intractable problems of inequality and homelessness.”