{"id":7433,"date":"2018-01-10T12:55:44","date_gmt":"2018-01-10T20:55:44","guid":{"rendered":"http:\/\/occupysf.net\/?p=7433"},"modified":"2018-01-10T12:55:44","modified_gmt":"2018-01-10T20:55:44","slug":"growing-movement-create-city-run-public-banks","status":"publish","type":"post","link":"http:\/\/occupysf.net\/index.php\/2018\/01\/10\/growing-movement-create-city-run-public-banks\/","title":{"rendered":"The Growing Movement To Create City-Run Public Banks"},"content":{"rendered":"
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As activists pressure governments to remove their deposits from banks that back bad policies, cities are considering a new option: become their own financial institution that serves the needs of the citizens, not investors.<\/h3>\n<\/div>\n
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[Photo:\u00a0Etienne Martin<\/a>\/Unsplash<\/a>]<\/p>\n

BY\u00a0ADELE PETERS<\/p>\n

When the movement to push the city of Los Angeles from keeping its money at Wells Fargo grew in 2017\u2013as in\u00a0other cities that decided to pull money from the bank<\/a>\u00a0because of its fake accounts scandal and funding of the Dakota Access Pipeline\u2013organizers of the campaign realized that they faced a challenge: Where to put the money next.<\/p>\n<\/div>\n

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The largest city accounts are too big for small community banks to handle, so divestment from one major bank typically means moving money to another major bank that likely has social responsibility issues of its own. In addition, even ethical smaller banks aren\u2019t directly accountable to the public. L.A., along with other U.S. cities, is now considering another option: a public, city-owned bank that would keep money inside the community, and follow a socially and environmentally responsible charter.<\/p>\n

\u201cThis started as a divest campaign,\u201d says Phoenix Goodman, cofounder and policy director for the activist group\u00a0Revolution LA<\/a>, which runs both Divest LA and\u00a0Public Bank LA<\/a>. \u201cI was tasked with doing research on alternatives and what that would entail financially, and in looking into it, I realized, wait a minute, we have so much money that the only other banks that can handle our accounts are other huge Wall Street firms, all of which are complicit in this same system, more or less. Maybe Wells Fargo is the most egregious, but in a way it\u2019s a smaller victory, because we\u2019re just going to move to another big bank, and we\u2019re not changing the system, we\u2019re changing a symptom of the system.\u201d<\/p>\n

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A public bank, they realized, could be designed to bar unethical business practices. It could also save the city money. Los Angeles, for example, paid private banks more than $100 million in fees in 2016. Instead of taking out loans for infrastructure projects from major banks, and sending fees and interest outside the city, a public bank could handle the city\u2019s needs itself. Public banks can be set up to hold government deposits and give loans to the government and work as a \u201cbanker\u2019s bank\u201d for smaller community banks; in another model, they can also be set up to take consumer deposits. The initial capitalization can come from a variety of sources, including long-term investments, bonds, and crowdfunding.\u201cThat\u2019s our tax dollars that get siphoned off to profits on Wall Street,\u201d Goodman says. \u201cIf that same mechanism can be owned by the people themselves within the city, that interest can be reinvested as profits for the bank to be used and reinvested again into new projects, so it would be profit for the city rather than private interests. Because it can save money, fiscally conservative people have found value in that as well.\u201d<\/p>\n

In the U.S., at the moment, only one public bank exists: The Bank of North Dakota. \u201cThe whole idea of the Bank of North Dakota, when it was set up in 1919, was to keep North Dakota money in North Dakota for North Dakotans,\u201d says Ellen Brown, an attorney and founder of the nonprofit Public Banking Institute. Her interest in the model was piqued after the 2008 financial crisis. As Wall Street banks collapsed and most state treasuries went into debt, the Bank of North Dakota grew assets and profits because the model, Brown says, is\u00a0more efficient<\/a>\u00a0than traditional banking.<\/p>\n

Several cities are now considering the idea, driven in part by the same divestment movement at work in Los Angeles. Santa Fe, New Mexico, which began working on the concept earlier than most, completed a feasibility study in 2016. Washington, D.C. has money allocated in the 2018 budget for a feasibility study. Seattle and Portland are considering the idea. Oakland is beginning a feasibility study, and a grassroots group of advocates is raising money for a business plan, the next step in the process. San Francisco is also pursuing the idea. New Jersey\u2019s new governor talked about his support for a state public bank as he campaigned (a state bank would work in a similar way, and could also work in conjunction with city banks).<\/p>\n<\/div>\n

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In California, marijuana legalization is providing another push for public banks. Other banks won\u2019t give dispensaries accounts because of discrepancies with federal law. \u201cThe whole situation is ridiculous,\u201d says Susan Harmon, an advocate with\u00a0Friends of the Public Bank of Oakland<\/a>. \u201cIt\u2019s absurd. The cannabis industry in Oakland pays taxes to the city in cash. They deliver huge bags of cash in armored cars to the city.\u201d Harmon says that it takes city staff five hours to count taxes from Harborside, one large dispensary.<\/p>\n

Once the city takes the cash to Chase, the bank can accept it; having a city-owned bank would remove the need to use cash at all. \u201cThe DOJ hasn\u2019t come down on Chase for money laundering,\u201d Harmon says. \u201cSo there\u2019s something about the magic hand of government touching this cash that launders it, in a good way. It somehow cleans it up and makes it respectable, and lets Chase accept it as a deposit, even though they wouldn\u2019t if Harborside went directly to Chase to try to open an account.\u201d<\/p>\n

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The problem of weed money will only grow, since recreational marijuana is now legal in California, as of 2018, along with medical marijuana. In 2017, the state treasurer said that the state should begin considering public banks as one option to deal with the hundreds of millions in cash that will be due in taxes.In L.A., organizers say that while they support the idea of using public banks for cannabis money, the idea can move forward with or without cannabis. A task force looked at the legal requirements for a public bank, potential regulatory barriers, and financial benefits and risks, and found the idea feasible on the surface; a next step will be a more detailed examination.<\/p>\n

If it works, the city would also have to create a governance model to make the bank responsible. A charter might outline, for example, that profits will be reinvested for the public benefit, and list sectors that would be restricted from investment, such as fossil fuels and private prisons, along with sectors that would be prioritized in line with the city\u2019s goals, such as affordable housing and community land trusts. Bank policy could also limit executive pay and require governance from a board with expertise in issues like sustainable development.<\/p>\n

\u201cYou can technically have a public bank that is still propped or beholden to the wrong interests, or incompetently run,\u201d says Goodman. \u201cA public bank is not enough. It\u2019s just one pillar of the system that we\u2019re trying to create\u2013one [pillar] is that it\u2019s public. Two is that it\u2019s beholden to the people in a transparent way, completely barred from unethical business practices and encouraged to follow socially and environmentally responsible business practices.\u201d<\/p>\n<\/div>\n

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Goodman and other advocates are also in talks with legislators in Sacramento, pushing for a bill that would create a regulatory framework for public banks in the state as a whole. It\u2019s a step that isn\u2019t necessary, but would help city banks in the state work together in a more coordinated way. The biggest barrier, he says, is getting people to realize that another model is possible. \u201cI think all we need is one victory,\u201d he says. \u201cWe think Los Angeles could be the first. I think it\u2019s going to be a chain reaction.\u201d<\/p>\n

New Jersey could also potentially move quickly, says Brown. The state\u2019s recently elected governor, Phil Murphy, who talked about his support for public banks in his campaign, previously worked at Goldman Sachs. That understanding of the banking industry\u2013and the fact that his background at such a lucrative institution might persuade some voters that government-owned bank could be well-run\u2013could be key.<\/p>\n

\u201cIt seems to me that the big issue is political will,\u201d Brown says. \u201cAny state or city could do it if they had the political will. But the problem is overcoming this resistance from politicians and from big banks, who will say things like \u2018politicians should not be bankers.\u2019 The politicians aren\u2019t going to be the bankers; you\u2019re going to hire the best bankers you can find, of course.\u201d<\/p>\n

If it succeeds, the model could reshape the larger financial system. \u201cWhat we\u2019re basically changing is the relationship between private financial firms and public entities like state and city governments,\u201d says Goodman. \u201cBy changing that relationship, we can have a tangible effect on the entire economy as a whole. Because everything emerges from banking. Every single thing needs funding, so the source of that funding will determine everything else that unfolds in the economy.\u201d<\/p>\n<\/div>\n