California’s New Public Banking Law: Joy and Cautious Optimism

by Matt Stannard
October 3, 2019

Good news this week: California municipalities may now apply to create public banks.

In my work with the Public Banking Institute, I spent many years writing arguments in favor of the social utility and justice-delivering potential of public banks. As a member of the Commonomics USA team I was fortunate to participate in some of the meetings and workshops that built the agendas and grassroots coalitions that culminated in the successful passage and signing into law of AB 857. More recently, I’ve assisted the Rocky Mountain Public Banking Institute in their education and legal efforts in Colorado. Getting public banking bills on the floor for consideration in the first place had proven next to impossible until this happened in California. Heck, New Jersey Governor Phil Murphy campaigned on creating a public bank in the state and now the effort seems tabled. The only other bona fide public bank on U.S. land since the formation of the Bank of North Dakota by a socialist government in 1919 has been in American Samoa, and only via federal fiat, and only because there was an air-tight and purely non-ideological case for it.

So this is a big deal, and the bill’s sponsors have used the language of economic access: “communities and neighborhoods . . . use public dollars for their own public good . . . affordable housing . . . schools and parks . . . accessible loans for students and businesses” in justifying the law, which allows municipalities to apply for banking charters (the law itself doesn’t create or require the creation of any banks).

My own five great years in the thick of the movement were exhausting, and I learned a lot about how good ideas win and lose in political contexts. So I’m cautiously optimistic at the news, even though I take great joy in the movement getting this far. I also have no desire to second-guess the great activists, policy people, and communicators making it happen in California’s here and now. They know more than I do and you should direct your questions to them–and see how you can help, especially if you’re in California, because the battle isn’t over.

Reasons to be optimistic:

1. The law is clearly written to encourage local economic sustainability and push away bigger banks.

“It is the intent of the Legislature,” the Act reads, “that this act authorize the lending of public credit to public banks and authorize public ownership of public banks for the purpose of achieving cost savings, strengthening local economies, supporting community economic development, and addressing infrastructure and housing needs for localities. It is the intent of the Legislature that public banks shall partner with local financial institutions, such as credit unions and local community banks, and shall not compete with local financial institutions.”

So those are goods (and some not-bads) in themselves, steps in the right direction. Although private local bankers can just as likely be greedy little local viceroys as community-minded entrepreneurs or George Bailey-type stewards, local banks generally do better by local folks. It’s incumbent on those communities to demand the best from their local businesses, and a municipal bank can be a tool to do that.  And, of course, credit unions kick ass. They aren’t public banks, but they can do about as well as consumer co-op entities can do in a hierarchical market environment. Public banks will help those entities. And local financing of green energy, worker-owned cooperatives, and nonprofit services could be game changers. The right leaders could make much of these banks.

2. The law sends a message that a public economy, and public finance, exist. Privatized finance isn’t natural or optimal. We can debate about whether private entities can co-exist with public ones (the record of partnership isn’t good), but before we can have that conversation, we need to shift the presumption away from private ownership — particularly of finance. The debate needs to happen on a level, democratic, worker-and-stakeholder-oriented field.

Public banks change the conversation about scarcity and public goods. They inform a new discussion about sustainability and growth. In a sense, public banks do this just by existing. But their successful deployment in an egalitarian and ecologically-positive manner, sooner rather than later, will make California’s victory worth the effort.

Reasons to be cautious:

1. The charter process and other “safeguards” could become poison pills, circumventing or even undermining the success of public banks. The politics of the Commissioner of Business Oversight just became very, very important to California’s financial (and by extension material) future. One harsh criticism of public banks published during the California effort contained this kernel of truth that ought to be useful to the movement’s counter- and pre-emptive strategizing: “the State Department of Business Oversight must review applications for new banks,” the critic writes, “looking at capital, asset quality, management expertise, earning potential and sensitivity to market risk, and given the uncertainty of a public bank’s ability to meet these risk thresholds, it may be years before the DBO could approve a public bank.”

Politically, that’s both a threat and a promise. One might answer—as public banking advocates have effectively and correctly done—that private banks are riskier than public banks in all ways, particularly in the regulatory status quo. But the charter application process contains opportunities for insidious politicization, and very few people have discussed this during the excitement of this legislative push.

Business oversight and banking boards usually have sole or nearly-sole decisionmaking power and applicants have limited ability to seek review of their decisions. The last iteration of the Colorado Banking Board I researched in 2018 included five bank presidents or CEOs, an attorney for a private trust company, a bank V.P., and two members of the public. Courts routinely defer to the decisions of these boards even if they think their decisions were weak. The DBO’s current commissioner is unsurprisingly a veteran of the private financial industry, at Affirm Inc., specializing in high-interest short-term loans.

Activism will have to emerge around that decisionmaking process; it should be openly politicized — and stakeholders should understand that the process is already political; market tests, profitability, even safeguards are already politicized.

The new law also caps the number of public banks allowed in the state at ten, an arbitrary number with no real rationale except to appease the private banking industry, which fears the competition.

If the process of approving and creating public banks can become transparent and include community stakeholders as deciders, then many of my concerns around this would go away. The frustration of such review is that it is so often conducted by industry hacks who refuse to think outside of the box from which they’ve been feeding.

2. A public bank is only as good as the government that runs it–and North Dakota proves this.

Will public banks be chartered with social, economic, and ecological justice-oriented goals and safeguards? The inclusion of such standards was the common demand of every grassroots activist I ever encountered in California’s rapidly growing 2017-2019 public banking movement. Although those standards were not always of precisely defined importance to the PBI crowd that clustered around Ellen Brown between 2008 and now (and far from the concern of some, as I mention below), those concerns drove the motives and conversations of many of us, just as it motivated the original founders of BND in 1919 and in many of public banking’s movements and moments in history.

But such priorities have to be explicit. Otherwise, public banks can actually make fossil fuel consumption, police state violence, and unhinged development worse. California public banking activist David Jette’s insightful and inspiring diary of the origins and successes of California’s public banking fight explains that Wells Fargo helped finance the Dakota Access pipeline and the violent police actions that upheld it. But David doesn’t mention that North Dakota used its own public bank to provide emergency funding to the militarized cops suppressing the Standing Rock protesters. The Bank of North Dakota made fossil fuel fascism easier.

Governments aside, proponents of public banking aren’t all socialists or leftists or liberals or even moderates. Ellen Brown’s early supporters included right-wing anti-monetarists, fans of G. Edward Griffin, a John Birch Society member and co-facilitator of the infamous 2009 conference on Jekyll Island that helped renew the right-wing militia movement. A few somewhat influential contemporary public banking advocates are vocal Trumpians, with all the cheerleading of stormtroopers that entails. Imagine public bank-funded stormtroopers (North Dakota did it). Imagine Trump having a public bank to fund his militarized border wall, or the thousands of other machines of despotism and brutality he would most certainly bring into existence with what public banking’s less rigorous proponents call “free money.”

Obviously I think we should create public banks anyway, and fight the battle against fascism in the streets and the ballot box (although I have to admit that the presence, however minimal, of extreme right-wingers in the movement always made me feel icky). But the reason the California movement succeeded was not that it appeased conservatives—it succeeded because it built an unapologetically left-oriented, social/economic/ecological justice-focused movement inclusive of all the kinds of people and communities currently threatened by Trumpian fascism. California hasn’t always been a perfect bulwark against that threat, but this victory is another reason why it’s been a recently reliable one.

In fact, in the hands of California’s empowered progressive-left coalitions, with an engaged public forcing new paradigms onto old regulatory structures, public banks will do great things in the service of a new, green, egalitarian economy. I like the way David Jette put it:

Everything that a private bank does for local governments and businesses, a public bank can do.  And as these models prove themselves, lawmakers will see how crucial they can be to a thriving, independent economy, and they will expand.  Eventually, a parallel banking system will emerge, one that does not invest in private prisons or fossil fuel extraction, and does not ship profits to Panama or the Cayman Islands to be laundered. Consumers, governments, businesses, everyone will have the option to divest from the old economy and into a new one, one that works for everyone, including the Earth itself.

That’s a world worth fighting for, and the socialization of finance, even to the limited extent that a “public option” in banking manifests, is also worth fighting for.

By the way, the photo here of activists demanding a public bank comes from Kurtis Wu, @kurtis_wu , whose photo contribution has been widely used and deserves a lot of credit for capturing the moment.

Matt Stannard was a communications coordinator, researcher and board member of the Public Banking Institute, was policy director at Commonomics USA, and is operations director at Solidarity House Cooperative, which you can learn about and support here.

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