The Public Banking Institute: Banking in the Public Interest Is a Game Changer

Public Banking Will Disrupt the Wall Street Banking Monopoly

Banks owned and capitalized by a public agency (federal, state, county, or city) with a mission to serve the savings and investment needs and interests of the communities they serve, are so rare that most people are not aware that such a “public option” is even a thing. The chances are very high that you, and most readers, bank at a privately owned bank, probably a Wall Street bank — Chase, Bank of America, Wells Fargo, etc. Or perhaps you bank locally at a community bank or credit union — good for you! Keeping your money local is good for the community, and research documents the outsized role played by local banks and credit unions in making loans to small businesses. Roughly 50% of Americans are employed by a small business (under 500 employees) and roughly 2/3 of all new jobs are created by small businesses.

That said, community banks have been disappearing steadily, shrinking almost 50% in the past two decades to about 4000 today. There is one important exception to this trend. The Public Bank of North Dakota (BND) was formed a century ago during an economic downturn. A populist movement succeeded in creating the first state owned public bank in 1919 after desperate farmers and small businesses were unable to get loans from the Wall Street banks “back east.”

Most readers have never heard of the BND, and would be surprised to learn that it has been so successful that their return on equity, a measure of profitability, is 18.56%, about 70% higher than those at Goldman Sachs and J.P. Morgan. The state bank receives deposits from tax revenue, and functions as a “bankers bank” in that loans are made to local banks, and the local banks manage customers’ checking and savings accounts. North Dakota has more community banks, per capita, than any other U.S. state.

Enter the Public Banking Institute (PBI), a kind of think tank and advocacy organization, that aims to change the banking ecosystem and educate the general public about the benefits of “banking in the public interest.” Concerned about the 2008 Great Recession, attorney and author Ellen Brown began to research why the U.S. bailed out most of the big banks but left cities, counties, and homeowners to fend for themselves. In her search for alternatives she discovered the Bank of North Dakota, and realized that it could serve as a successful model and could be replicated by other government agencies. Ellen and other committed colleagues formed the nonprofit Public Banking Institute in 2011.

For the past 12 years, PBI has been building awareness, and more importantly, creating a networked infrastructure of state and local grassroots groups and guiding lobbying efforts to support legislation to fund public banks. Not surprisingly, it has been an uphill battle.

The private banking system is deeply embedded in the status quo and sees public banking as competition for deposits. PBI counters that they are not interested in replacing private banking, but offer an alternative in areas where the current banking system is either uninterested or failing to invest. Examples include affordable housing, low interest credit for small business expansion, access to high speed internet to address the digital divide, and new infrastructure projects, including maintenance and upgrades.

PBI has achieved significant progress as their efforts have matured.

  • Organized the first national conference on public banking, which took place in Philadelphia, PA in 2011.
  • Organized five additional national conferences and one strategic summit in 10 years.
  • For the past six years, hold two monthly national calls for public bank advocates and those interested in learning more.
  • Produce an influential series of videos, podcasts and livestream shows to engage and educate the public.
  • Serve as a respected resource hub for legislators, journalists, and the general public.

The graphic above indicates that PBI’s efforts are now taking root as cities and states around the country introduce new legislation. California is leading the way. The East Bay Public Bank just hired a new CEO to lead the first new public bank since the Bank of North Dakota over 100 years ago. Further, San Francisco has received the go ahead to form the first ever municipal public bank in the U.S. As you see below, we are beginning to catch up with the rest of the world.

System Change. The public banking movement is significant because it represents a systemic change in the monopoly of private banking. If it continues to disrupt the status quo and demonstrate that our money can be invested to meet the needs of the public, it could serve as a model where other monopolies are being threatened with disruption. Examples include Big Ag and emerging local food systems; Big Energy and the growth of community solar systems distributed via micro grids; Big Health Care and the rise of alternative medicine and integrated therapies; Big Retail and the movement to revitalize local economies. These and other shifts away from the global corporate economy to localized solutions have the potential to supplant the unsustainable “Business as Usual” consumer culture and lead a transition to a new culture rooted in ecological values.

Without going into the weeds of how money is created and circulated, it is noteworthy that Ellen Brown, schooled by the American Monetary Institute (AMI), is now bridging the gap between AMI and Modern Monetary Theory (MMT). MMT economists challenge the traditional conservative narrative about the need to balance the federal budget or face crippling debt from deficit spending. Stephanie Kelton, leading MMT spokesperson and author of The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, explains how the federal government, as the issuer of the currency, is able to run deficits and manage inflation while funding progressive programs like Medicare for All, Head Start Preschool and early childhood programs (which have never been fully funded), free tuition for community colleges (students actually move to North Dakota in order to refinance their loans through the public BND), expansion of the new American Climate Corps, and even federal Job Guarantee programs to create full employment when private sector employment is at capacity.

Resources. If you are intrigued by the public banking movement and want to learn more, the first rate PBI website provides a plethora of ways to get involved with existing advocacy groups, or take a deep dive into the strategies and legislative initiatives documented on the website and start one in your city or state. Literally anyone can become a Friend of Public Banking by adding your name to the national roster and stand with the critical nationwide efforts to create public banks. A series of short videos under the Public Banking 101 tab can bring you up to speed.

Ellen Brown’s It’s Our Money podcast interviews and explores current fiscal issues with economists who are eager to reform the failing neoliberal economics still being advocated by mainstream media and economists. A recent example of PBI collaboration in advocating for a National Infrastructure Bank capable of creating 25 million new jobs while simultaneously addressing the current budget crisis, has now been introduced in Congress (H.R. 4052). PBI is leading a coalition to attract co-sponsors and hosting Zoom events to educate legislators and the public.

I have written elsewhere on Medium.com about the synergy between MMT economics at the Federal level and public banking at state and local levels. See MMT Economics Offers Key to Funding a New Economy and the Green, Progressive Agenda.

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