Public Banks
Public Banking: A "New" View of Money.
Many people today in the
“I sincerely believe, with you, that banking establishments are more dangerous than standing armies.” --- President Thomas Jefferson 1816
“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by a system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men.”
---President Woodrow Wilson, after signing the 1913 Federal Reserve Act
How we could View our Public Tax Revenue Differently
State tax revenue (the money we pay in taxes) should be viewed as a public utility instead of an addition to the balance sheet of mega banks which they are able to leverage for their own private product. Public money is a public utility because its purpose is to use it for the good of the people in the state: schools, parks, safety, infrastructure, credit for local businesses.
It’s common sense that Washington State tax revenue be used in Washington State rather than as money-making capital for a few well-connected people who work in big banks. Even though the concept of Public Banking is new to many people, it is catching on fast. In fact, now (June 17, 2011) 13 states are advocating to have a Public Bank in their state.
A public bank in any given country or state is a bank that partners with local banks and credit unions in supplying low cost credit to the people in that country or state. That is its purpose. There are many examples of successful public banks worldwide, in places like
Public banks partner with community banks, including credit unions, to provide small business loans and fund infrastructure projects. They help set up accounts to help out students and farmers. The primary activity of a partnership bank is participation lending. That means the bank participates in loans started by local banks and credit unions. Participation lending can look like this:
1) A Public Bank is able to increase the total size of a person’s loan.
If someone wants a small business loan for $40,000 and their local bank is willing to loan them $30,000, the Public Bank can partner with the local bank to increase the size of the loan to the full $40,000.
2) A Public Bank is able to buy down interest rates attached to loans.
If the local bank is offering a $25,000 loan at 9% for a farmer to buy a new truck, the Public Bank can help lower the interest rate to 6%.
3) A Public Bank provides loan guarantees.
If a city wants to borrow money to repair a bridge, but the bank isn’t willing to guarantee a loan, the Public Bank can partner with the local bank to guarantee that loan.
Public banks are run like regular banks but focus on the well-being of the public.
Who Controls a Public Bank
In a Public Bank there are no billion $ banker bonuses, no high paid bank executives, and no shareholders who profit from the bank. It is run by bankers and is publicly governed.
In North Dakota The State Industrial Commission governs The Bank of North Dakota. Members of this commission are the Governor, the Attorney General and the Commissioner of Agriculture. There is also a bipartisan seven-member Advisory Board appointed by the Governor which oversees the Bank of North Dakota. This 7-member group reviews the Bank's operations and makes recommendations to the State Industrial Commission.
http://www.banknd.nd.gov/financials_and_compliance/annual_report_2010/report.html
In Washington State safeguards would be in place to make sure that public money was used to help the public. The public bank would not be used as a vehicle to help special partisan interests.
How Public Banks are Capitalized
Money is needed to start up any bank. Banks need to be capitalized. There are a few ways to capitalize a Public Bank.
1) The government could float general obligation bonds. The interest and principal on these bonds would be paid back over time from the revenues of the State Bank.
2) Every state has some pots of money that are somewhat “idle”- either not being invested for their intended use or not invested at all. Some of these funds are unrestricted enough that they could be invested in something like the capitalization of a Public Bank.
3) Another possibility for partial capitalization of a Public Bank is to use a note guaranteed by the state’s growing “abandoned property fund.” The states have nearly $33 billion in such funds. (www.unclaimed.org/what/)
Would Public Banking Work in Washington
Most people believe in the power of small businesses. In fact, 70% of people work in small businesses in
Surveys by the
If
(Center for State Innovation – Washington State Bank Analysis – December 2010)
We Really Need a Public Bank in Washington State
Currently, in
We do have a special lending program in
Unfortunately, at a time when Washingtonians need credit the most, lending through the Small Business Administration’s flagship 7(a) program in Washington declined 35% from 2007-2009. This cut in lending has contributed to our current massive deficits and continued unemployment.
The reduction in lending has led policymakers to consider a number of reforms designed to increase bank lending, particularly to small businesses which have been the hardest hit by tightening credit standards.
A partnership bank in
What a Public Bank would Mean for Washingtonians
A Public Bank in Washington State would make credit available for small business loans.
It is estimated that a Public Bank in
2) A Partnership Bank can offer low-interest financing for homeowners and businesses.
Imagine having a credit card at 6% interest. How about offering zero-interest loans as community equity loans for public infrastructure?
3) A Public Bank would help create and retain jobs.
It is estimated that a Public Bank could help create or retain 7,400-10,700 additional small business jobs in
4) A Public Bank would generate new revenue.
A Public Bank could generate dividends for the Washington State starting in year 3, and a bank capitalized at $100M—and conservatively run—could pay total accumulated dividends to the state’s General Fund of $71M after 10 years, $206M after 20 years, $382M after 30 years, and $675M after 40 years.
5) A Public Bank would lower debt costs for local governments.
A public bank can get access to low-cost funds from the regional Federal Home Loan Banks. It can pass this savings on to local governments when they buy debt for infrastructure investments. The banks can also provide Letters of Credit for tax-exempt bonds at lower interest rates.
6) A Public Bank would strengthen local banks
The Bank of North Dakota’s charter is clear. One of its goals is to “be helpful to and to assist in the development of [
(Center for State Innovation – Washington State Bank Analysis – December 2010)
