Sight Magazine – Wow! : Boom of US public banks aiming to stay local and play fair

Washington D.C., United States
Thomson Reuters Foundation

April Fenall wants to electrify and modernize her fleet of California delivery vehicles, but she thinks her company with a conscience is too small to interest her big bank.

“It’s almost like you can see them looking at your bank account and sizing you up,” Fenall, 50, told the Thomson Reuters Foundation, speaking of bankers she’s approached. “I immediately feel that I do not fit the criteria.”

Philadelphia City Councilman Derek Green discusses a public banking proposal with supporters inside his office in 2019. PHOTO: Handout by the Philadelphia Public Banking Coalition.

Amid the turmoil of the past few years, she’s also unsure if she’s interested in working with them.

“Small businesses like me feel beaten down,” said Fenall, who runs Piikup, based in Oakland, northern California. “We don’t need another loan. We don’t need debt financing. Friendly low interest loans are what we need.”

“Loans under $50,000 just aren’t attractive to community banks or local financial institutions…it’s not worth their time and energy. It’s a huge void in the market that we hope to fill. in partnership with local financial institutions.”

– Susan Harman, who sits on the board of the proposed Public Bank East Bay.

Thus, a new proposal in the field caught his eye: a public bank, aimed at filling the gaps left by traditional financial institutions which, according to some, often avoid micro-enterprises or minority companies.

“Loans under $50,000 just aren’t attractive to community banks or local financial institutions…it’s not worth their time and energy,” said Susan Harman, who sits on the board of directors. of the project. East Bay Public Bank.

“This is a huge gap in the market that we hope to fill in partnership with local financial institutions.”

State-owned banks – usually owned and operated by a government entity, often in the public interest – are common in many countries, including Germany, India, China and beyond.

This is not the case in the United States, which for decades had only one: the state-run Bank of North Dakota.

American Samoa created a second in 2018.

U.S. Public Banking2

People discuss a proposed public bank in July 2022 at a farmers market in Castro Valley, California. Photo by Margie Lewis.

This picture is changing – and at pace.

Last year, 18 public bank bills were introduced across the country, according to advocacy group the Institute of Public Banks.

“Money is a public service, and banking should be a public service as well. Right now it’s a private service,” said Walt McRee, president emeritus of the Public Banking Institute.

“It’s about taking back control of our money.”

Proponents say public banks ensure wealth stays local and meets neighborhood needs.

Their potential rise comes as the number of small private U.S. local banks has shrunk from nearly 14,500 in the 1980s to just 4,200 last year, according to federal data.

Public banks can also reduce interest payments for local governments and free up money for future investments, McRee said.

Globally, these banks have shown real stability in crises, including the pandemic, said Thomas Marois, a political economist at the University of London.

While private banks are “withholding investment in the midst of the crisis,” he said, during the pandemic “public banks have almost universally increased their lending, directing it to health care, [small businesses]protect jobs and more. »

Today, there are more than 900 state-owned banks around the world, holding more than $49 trillion in assets, he said.

Although their growth occurred in particular after the Second World War, a major revival of interest has emerged in recent years following the 2008-2009 recession, as well as a new priority for financing sustainable development and the upheavals caused by COVID-19.

“People have suddenly realized that these are pretty fundamental elements of public stability and will be key to COVID recovery and future sustainability,” Marois said.

The United States is leading this “global renaissance”, he said, sparked in part by a loud new clamor for racial justice.

A U.S. Treasury spokesman declined to say whether he is following the increased proposals from state-owned banks or his stance on the issue.

U.S. public bank chart

The American Bankers Association, however, has long warned of the dangers of state ownership in the financial sector.

“History has shown that public banks create more problems than they solve and almost always fail, usually due to political interference leading to risky lending or operating with too little capital,” Blair Bernstein said. , ABA spokesperson, in an email.

“The creation of a public bank, when there is no demonstrated need, would expose taxpayers to substantial risk and create an unequal competitive playing field for private sector financial institutions.”

A widely followed effort in Philadelphia to create a proto-public bank was rejected by the mayor last month.

Mayor’s spokesman Kevin Lessard said the city’s existing agencies were well able to help disadvantaged local businesses, so there was no need to create new ones for that purpose.

Yet changemakers say the evidence points to the opposite.

“We have a 25% poverty rate in Philadelphia, and only 6% of businesses are owned by African Americans…although 43% of the population is African American,” said Derek Green, a city councilman who led effort. .

“It tells me that we have small businesses that are entrepreneurs but not able to grow,” he said, citing difficulties in accessing credit.

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Overturning standards is also a key goal for a $200 million Massachusetts statewide proposal, where supporters hope to introduce a new bill in January.

Only 4% of state business loans go to women-owned businesses, said Ruth Caplan, co-chair of the Massachusetts Public Banks Campaignwhile the pre-pandemic business owners of color access to capital gap was at least $574 million a year.

“We’re also concerned about farmers. They need low-cost capital to acquire farmland, and they can’t get the loans they need,” Caplan said.

The leading US state on the matter is California, which passed legislation in 2019 to facilitate such projects.

In San Francisco, there is a push for a new public bank that would support local entrepreneurs in times of need.

“We’re trying to figure out how to reinvest in our local economy in a way that makes sure small businesses don’t close in times of financial crisis,” said Jackie Fielder, co-founder of the San Francisco Public Bank coalition.

A business plan is underway, with additional focus on how best to fund the city’s climate goals and make housing affordable.

This last goal deeply affects Reina Tello, who in 2018 was evicted along with her two children and several relatives after trying to refinance their home following the 2008 recession.

“We had one of these horrible loans and fought our eviction for seven years,” said Tello, 40, a community organizer in San Francisco.

A community-based financial institution might do things differently, she says.

“That’s the most important thing the public bank can do: bring decisions to the local level. I can tell you what my neighborhood needs.”

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