- By Adam Shanks | Examiner staff writer |
- Jul 20, 2023 Updated Jul 21, 2023 (SFExaminer.com)
City leaders are poised to accept a plan to create what could be the first municipally owned bank in the country.
The San Francisco Public Bank would be tapped to finance construction of low-income housing, fund initiatives to combat climate change, and support small businesses. It would provide low-interest financing and investment in projects with social benefit where traditional banks have fallen short.
Though it might accept the plan in concept, the Board of Supervisors will have to take further action to actually make a public bank a reality. It’s unclear exactly when that would happen.
The idea for a public bank in San Francisco, which has gained momentum in recent years, is predicated on the belief that private banks have focused on returns for shareholders to the detriment of underserved communities.
“The need for the San Francisco Public Bank is more urgent than it ever has been,” said Christin Evans, who chaired the working group that drafted the plan. “Economic disparity, the lack of affordable housing and climate change are all crises that large for-profit banks have, in various ways, contributed to.”
The public bank could cover needs unmet by traditional banks. Khalid Samarrae, a policy analyst for The City’s Local Agency Formation Commission, explained that businesses are often unable to secure small loans because, for the bank, “the amount of time it takes to do one loan for $10,000 is the same as a loan for $1 million.”
“What we need in San Francisco is an entity that is focused on filling in that gap that private commercial banks are not interested in,” Samarrae said.
The study leading up to Tuesday’s hearing was done by the Reinvestment Working Group, which was created by the Board of Supervisors and met over the last 18 months to build the proposed plan.
The proposal was vetted Thursday by the Board of Supervisors’ Government Audit and Oversight Committee, which voted unanimously to recommend accepting the plan. It now moves to the full Board of Supervisors for a vote.
Supervisor Dean Preston has championed the public bank, pitching it Thursday as a tool for the City’s post-pandemic economic recovery.
“There’s really a need to make sure we’re actually serving the needs of our community through how we invest capital in San Francisco,” Preston said.
The plan is just that — a plan. The City has yet to develop a specific funding mechanism to get the public bank up and running. The Board of Supervisors would have to pass a separate ordinance to actually create a municipal bank.
The plan calls for The City to first establish a municipal financing corporation, a legal entity that would be able to provide loans, but could not accept deposits and would not be federally insured.
The three years for which it operates as a municipal financing corporation would essentially serve as proof of concept for a public bank, according to the plan’s engineers. The City would then make the case to regulators that it is ready to accept deposits and be insured by the Federal Deposit Insurance Corporation.
To financially kickstart the bank, its backers would explore state grants, philanthropy, and federal funds from the recently adopted Inflation Reduction Act. The plan supposes amassing $90 million in assets by its third year of operations.
The public bank’s potential programs are varied.
For example, it could provide short-term loans to potential affordable housing developers for planning work such as engineering. It could also provide smaller loans, between $50,000 and $100,000, for nascent businesses that would struggle to secure one from a traditional bank. To help The City to achieve its green energy goals, the public bank could offer financing to building owners trying to electrify their properties.
As outlined by the Reinvestment Working Group, the public bank would be professionally run, with public oversight, and independent of political influence.
A 2019 state bill, the California Public Banking Act, allowed cities such as San Francisco to explore the creation of public banks. The legislation was co-authored by then-Assemblymember David Chiu, who now serves as the city attorney.
San Francisco would be the first city in the country to establish a public bank, according to Preston, although others have shown interest. The state of North Dakota operates a public bank, which the San Francisco public bank’s backers have pointed to as a shining example.
