Proposition B’s public bank would give San Francisco another tool to fund civic initiatives such as building affordable housing or providing loans to small businesses.
Manuel Orbegozo/For the S.F. Chronicle
On Election Day, San Franciscans have the opportunity to authorize the first municipal public bank in the country by passing Proposition B. It’s a watershed moment for the city and advocates for a fair economy across the country.
While tremendously exciting, from a global perspective, San Francisco is a little late to the party. Public banks are a proven and tested model. In 2024, over 1,100 of these institutions worldwide held $91 trillion in assets. Public banks are a safe way to put our public money to work for the public good.
San Francisco is rich in culture, innovation and diversity, but still struggles to meet its people’s needs for affordable housing and inclusive economic development. A public bank can help by providing additional, values-aligned finance tools to help make our city greener, more resilient, more democratic and more affordable.
Like conventional banks, public banks issue loans and make returns on those loans. However, public banks put public money to work for the people and do not need to be profit maximizers. Instead, well-designed public banks can function as policy maximizers by making sustainable returns while supporting democratically determined community needs. For example, public banks can support the affordable housing the city badly needs that is underserved by loans from profit-maximizing, private-sector banks. Public banks take into account the public interest in their lending decisions.
Public development banks, of which there are about 500, like the kind San Francisco is considering, finance around 10% to 12% of the world’s total investment as of 2024. And while public banks have been around for hundreds of years (the first public bank was a municipal bank created in 1401 in Barcelona), they have experienced a resurgence in interest following the 2008 global financial crisis, in response to the climate crisis and following the COVID-19 pandemic. This is because public banks can respond to crises as a matter of policy rather than profit.
The publicly owned Bank of North Dakota was capitalized with $2 million in 1919, and since then, the people of North Dakota have benefited from low-cost loans provided in partnership with local credit unions and community banks for unmet needs like helping farmers recover from disasters, building workforce housing, opening childcare centers and providing financial assistance for federal employees affected by government shutdowns. Last year, the Bank of North Dakota generated $353 million in returns for the state, while also directly stimulating the local economy.
The public bank of San Francisco would add another option to the city’s municipal finance toolkit and work in tandem with other mechanisms, like grants and bonds, to more flexibly support public policy priorities. While it’s true that bonds are essential for large-scale capital projects the city doesn’t have funds for, they have some limitations; for example, because of the steep fixed costs of issuing bonds, they are not feasible for smaller projects and non-eligible spending, like fleet electrification, which a public bank can fund more cheaply and efficiently. And because public banks can make money while supporting economic development, they help cities use limited public dollars more efficiently.
San Francisco’s public bank would also be highly regulated, with oversight from state and federal regulators who are tasked with ensuring that all banks meet safety and soundness standards. Comparable municipally owned public banks in Canada and Europe are some of the safest and most economically efficient banks in the world. With as few as 20 employees managing $10 billion in assets, many have never suffered a loan loss — ever.
When designed as such, public banks are some of the most democratic, transparent and accountable financial institutions anywhere. Prop B calls for an independent bank oversight commission, and all board and committee members are appointed and vetted in a public process. That process includes a community outreach committee designed to ensure transparency and public engagement by issuing regular reports on the bank’s work and holding town hall and focus group meetings.
In Europe, public banks widely support public policy goals around social housing. For example, MuniFin (a municipally owned bank in Finland) is a major supporter of not-for-profit housing in the country, with 48% of its long-term loans going to this end. The Municipal Finance Authority of British Columbia, a bank owned by and for cities of the province, is one of the most effective and efficient banks in the world, public or private: some 20 employees manage over $10 billion in assets. While it specializes in infrastructure, like water and sanitation, it supports social housing with low-cost loans when requested by cities.
Setting up public banks takes time, care and attention to detail, which is why advocates have been working for years to design a governance framework that provides democratic oversight, a high standard of professional expertise and controls to limit political influence on the bank’s lending.
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Like with any investment, timing is everything, which is why Prop B doesn’t require the city to put any money toward starting the bank. Passing Prop B empowers San Francisco to pursue external funds to invest in the bank and decide the right way to fund this priority once the structure and safeguards are in place. Failing to pass the measure means the city loses this opportunity.
The best time to start a public bank is 20 years ago, the second best time is now.
Thomas Marois is a professor of political economy at McMaster University in Ontario. He is the author of the book “Public Banks: Decarbonization, Definancialisation, and Democratisation.”