Creating a Public Bank Will Test Philadelphia City Council

It has been almost nine years since the first national public banking conference was held in Philadelphia. Now across the nation, city councils and state legislatures have moved forward with ordinances and legislation to create public banks.

In January, twelve members of Philadelphia City Council (a veto proof majority) introduced an ordinance to establish a public bank for the city. There will be hearings. Areas of critical concern will be the mission, capitalization, deposit base, governance and management of the proposed bank. The model is, or should be, the nearly 100 year old and hugely successful Bank of North (BND).

What has made the BND such a success? There are numerous benefits to borrowers, the local banking industry and state and municipal governments, but how the bank is organized is the key to its continued success.

 First, it is a “partnership” bank that does not loan directly to individual borrowers or businesses, but only in partnership with an “origin” private bank, credit union or other local financial institution.

Second, the public bank can loan directly only to government agencies, such as school districts and authorities, taking the place of far more expensive bond issues. This reduces “debt service’ and the taxes to pay it.

Third, at the direction of the controlling political authority – in this case, City Council – the public bank can contribute from its profit to annual budgets. This is non tax revenue. Of course, there must be profits from which to contribute.

It is important to understand that the public bank is not a ”lender of last resort,” making loans no private financial institution would offer. Borrowers must first meet the credit standards of some originating, private lender which will service the loan. Then the borrower must also meet the credit criteria of the public bank.

This standard is the major reason the BND has been remarkably free of defaults on the loans in which it participates. But critically, because the public bank can “buy down” interest rates, more borrowers will qualify, achieving the mission of providing more affordable credit in the market.

City Council can establish the mission of a public bank, such as lending into historically disadvantaged communities or providing mortgages that include retrofitting homes and businesses to renewable energy. And the controlling political authority can hold the bank officers accountable to achieving that mission. But the bank must not be viewed as a source of political largess, moving taxpayer money to favored borrowers who cannot make the monthly payments.

 Anyone remotely familiar with urban government in the United States will understand that this course will be ruinous, and likely collapse the bank under the weight of bad loans – perhaps quite quickly.

 To avoid this failure, while political authority must have oversight, the bank and its officers must be free of political management.  It is public money and the elected representatives of the people have a responsibility and right to provide that oversight, as they do to establish mission. But the staffing, management and credit decisions of the bank must be made by qualified banking and finance professionals, independent of and protected by a fire wall from the kind of political management which in the past in Philadelphia and elsewhere has corrupted and crippled good ideas and worthy causes too numerous to mention.

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It is with great sadness that we report the death of our friend and colleague, John Hemington. John was there at the begining to launch our Pennsylvania Project. His wise counsel and hard work as a director and adviser were invaluable assets. And we extend our heartfelt sympathies to his wife, Carrilee and the entire family.

It is a great loss, but we give thanks for John’s life and work as the angels welcome him. 

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California lawmakers took the next step before Thanksgiving 

 California State Senators Mike McGuire and Steven Bradford took the next step  toward establishing a state public bank on November 23, 2020 by chairing a joint hearing with the Governance and Finance, and Banking and Financial Institutions Committees, with testimony from a wide range of financial professionals and community activists supporting legislation for a state public bank.

On the march in 2021 with new legislation !

In a remarkably strong start to 2021 legislative sessions, three states — New York, Oregon, and Washington — have introduced new legislation to establish state-owned public banks. In contrast to bills of previous years that aimed to create a task force or call for a feasibility study, all three new bills would start a bank. This is in part because of the numerous studies already conducted in many states and cities.

[To review these bills and all state legislation, please click on the link to Legislation at the top of this page.]

Then in Philadelphia on Janary 28 an ordinance was introduced in City Council to create a city owned public bank 

Next stop, the Pennsylvania General Assembly, where we will request joint, bi-partisan hearings before the House and Senate Majority and Minority Policy Committees

    Perhaps once in a decade Pennsylvania state lawmakers have an opportunity to take an initiative that will leave a legacy for generations. This is one of those times. 

For Beginners:

WHAT IS PUBLIC BANKING?

   Public banking is banking operated in the public interest.  A Pennsylvania public bank, modeled on the 100  year old and hugely successful Bank of North Dakota (BND) would be created by the Pennsylvania General Assembly and owned by the people of Pennsylvania, the bank’s only shareholder. The bank will be chartered to partner with and not compete with our community banks and credit unions, and to serve public purposes as established by state lawmakers

   Unlike private banking,  public banks invest for the long term and not short-term profits, Officers and management will receive no commissions, bonuses or stock options. The incentive for risk taking is removed. A Pennsylvania public bank will be managed by experienced bankers and government finance professionals and audited annually by the PA Department of Banking and Securities, to insure transparency and accountability. 

Please visit the top bar, Reports and Studies, for a full review of the benefits of a public bank, which we will explore on this page in the months ahead, as we prepare to introduce legislation.

 

QUICK SUMMARY:

KEY FACTS ABOUT A PENNSYLVANIA PUBLIC BANK

    • Owned by the people of Pennsylvania
    • Hold some part or all of state revenues as deposits, safe from Wall Street risk taking and speculation
    • Returns its profits annually to the general fund as non tax revenue – millions or even billions of dollars ! – and/or reinvests some part of profits in expanding its lending,
    • Can loan directly at low interest to local governments, school districts and authorities for infrastructure
    • Partners and does not compete with local banks and credit unions to make affordable credit available to their customers, businesses large and small, home buyers and students
    • Will by law be managed by qualified bankers and financial professionals who receive a salary and usual benefits only (like health care) but no fees or commissions, so there is no incentive for risk taking
    • Provides accountability and transparency to the public with annual, public audits by the Pennsylvania Department of Banking and Securities.
    • Creates new jobs and spurs economic growth by its targeted lending
    • Can lend during times of economic crisis and in disasters, helping to sustain a healthy local economy.