Public Banking

Links to Matt’s Public Banking Series at Occupy.com

December 28, 2021
by Matt Stannard

There have been a few requests for the links to the 10-part series I wrote for Occupy on public banking in 2018. Here are all the articles in that series (I have several other articles both here at Cowboys and at Occupy, they’re searchable and if you have questions, you can leave them in the comments.
Reading through these articles at the end of 2021, three years later, particularly the ones whose titles are questions, I sense the need to follow up and answer some of them with the benefit of hindsight. There are still no public banks in the United States other than in North Dakota (a bank that isn’t being used for too many sustainable or restorative purposes, that does some good and also props up some bad) and America Samoa–and that bank was created administratively with no grassroots movement, and hence contains no grassroots agenda.

Enjoy the articles and get in touch if you want to have a public or non-public discussion about any of this.

Seizing the Public Banking Moment, 4/9/18

The Public Banking Movement Has Always Been About Justice, 4/16/18

How the Public Banking Movement Hacked Cannabis Banking, 4/23/18

Can Public Banks Help Us Re-write Our Financial Worldview? 4/30/18

A Tale of Two Cities: Can the Public Banking Movement Learn How to Fight? 5/14/18

Creating a Public Bank in New Jersey: Will the Inside-Outside Game Work? 5/21/18

Is the Postal Banking Movement Being too Careful to Succeed? 5/29/18

Cutting Out Wall Street and Putting the “Public” in Public Banking, 6/18/21

Public Banking Comes to the Territories, 7/2/18

As Finance Capital Pushes Back, Public Banking Must Build and Take Power, 7/17/18

Photo by Kurtis Wu, @kurtis_wu , whose photo contribution has been widely used and deserves a lot of credit for capturing the moment.

The Slog Ahead for New Public Banks in California

100 years ago, socialists in North Dakota quickly created a public bank. Things will unfold more slowly in California.

by Matt Stannard
October 7, 2019

Last week I cautiously celebrated the final passage and signing of AB 857 in California allowing municipalities to apply for public banking charters. I cautioned that there were no guarantees that the California DBO would approve public banks at all and that the process would be political-but-unpoliticized: banking board or licensing commission criteria are ideologically laden and rhetorically de-politicized; in other words, these actors hide their market biases but would accuse public banking advocates of wanting to politicize banks. I had other concerns too, but since that post I’ve learned a few other details, thanks to Marc Armstrong and David Jette generously answering some questions I had.

When I asked David what charter applicants might expect from a private-biased DBO, he suggested that the most prudent initial applicants would specifically focus on fixing city debt, credit to government agencies, and possibly green energy banks.

Fiscal soundness would also be important, he said. In a deeper sense, what this means (and I don’t think anybody seriously denies this) is that the banks will be judged according to the very paradigm of fiscal scarcity that public banking advocates rebuke. Well, reformism isn’t easy. Unlike 1919 North Dakota, Californians haven’t formed an agrarian socialist party and won the governorship and legislature. I appreciate David’s candor. This will be a years-long journey, and it will be challenging to keep public demand steadily humming.

The most important accomplishment of 857 is, as Marc told me in an email, that “the taboo has been broken . . . permission has been given.” Marc told me that several NoCal cities are investigating using JPA (Joint Powers Authority) to create a bank or banks. Large cities will certainly be the first to apply for licenses. Smaller cities will follow suit if the big ones are successful.

From what everyone is telling me, I surmise it will take two years at a minimum before we see a public bank open in the best scenario, and five or more years, again best case, before we see a handful of them.

But this is in the best case scenario, where there aren’t mountains of objections and demands made by private banking interests who want to hold onto the private advantage even for those narrow functions David mentioned. On the subject of bias towards private banks, Bob Bows reminded me this morning that one strong manifestation of this–and a potential legal and policy challenge for municipalities as these banks get off the ground, is the neoliberal doctrines that form the basis of anti-competitiveness challenges under global trade agreements. Recall that the ongoing concern with TPP and other regimes was that public utilities would be attacked and potentially become tribunal targets. I put together several sources’ analysis on this question back in 2015 at the PBI blog. Imagine objections being made in the DBO application process, or after the fact via trade tribunals, that public banks will be able to perform financial services without a profit motive, thereby undermining competition in a sector–the financial sector–that trade-in-services advocates view as their market territory. The public is excluded from most of the negotiations that create these rules, negotiations that will undoubtedly be biased against public ownership as a whole and public financial ownership specifically.

A long-term strategy summit, led by the on-the-ground California public banking organizations and activists at the forefront of poor people’s, divestment, and climate justice movements–the people who made 857 happen–may well already be in the works, and certainly should be, and if that happens I would joyfully live blog it, because to overuse the already overused phrasing, the real work starts now.

I’m operations director at Solidarity House Cooperative. You can read a lot of my articles, including several individual pieces and a longer series on public banking, here at Occupy.

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.

Public Banking, State Capitalism and the Collapsing Bridge

January 7, 2018 updated January 8, 11:16 AM

by Matt Stannard

I’ll give away the ironic image-play here. One chief argument for public banks is low-or-no-interest public infrastructure funding, and the exemplar of that argument is the San Francisco-Oakland Bay Bridge retrofit, which cost nearly twice as much as it should have because of interest rates on the money borrowed to complete it. Probably ten people total would get that connection to the title of this post.

The collapsing bridge here is the one between capitalism on the one side and public or democratic control of some financial institutions on the other.

The biggest challenge for the public banking movement is that it was originally conceived –at least in the wake of the Occupy movement of 2011– as a bridge between people who love capitalism and want to save it from the monopolies of the financial sector; and those who believe we need a full-scale transition into cooperative, non-capitalist economics. That bridge may no longer be stable. In a few years, it may not even exist at all, and the movement will have to answer the age-old question of the radical labor struggle: Which side are you on?

Over at Occupy, [EDIT: THE ARTICLE IS HERE] I’ll have an article up later this week (and will edit to add the link) on the ways in which the public banking movement has taken some punches to the gut, from Governor Phil Murphy’s deprioritization of a New Jersey state bank to the defeat of L.A.’s Measure B to the end-of-year news that the report commissioned by California’s Cannabis Banking Working Group strongly recommends against any public option in cannabis banking—bitter (but, as I explain in the article, unsurprising) news for those of us who pushed the public banking option and spoke before the Working Group at its public banking hearing in Los Angeles in 2017.

Deonna Anderson’s good new article on public banking in Yes! magazine doesn’t get into the movement’s recent defeats, but does mention my cautionary report about North Dakota’s use of its state-owned bank to entrench rather than break free from our life-killing dependence on fossil fuels—and the function of that public bank to emergency-fund state repression of protesters at Standing Rock.

Obviously there are different definitions of success, and the anti-scarcity narrative of public banking has tended to use a very generic definition, allowing advocates to tout the success of North Dakota’s extraction industry (made possible in part by the lending of the state-capitalist BND) while also taking some credit for the launch of Germany’s post-carbon transition. In a kind of marshmallow liberal sense, it makes sense that advocates of a type of public entity rather than an entire value system would present their case in value-neutral terms. But humanity is killing itself and major portions of the planet, public control of finance could help reverse course, and there are limits to who we want to spend time and resources winning over in that fight.

For years, the public banking movement has courted the smaller players in the banking industry—particularly community bankers, whom the movement has sometimes flatteringly portrayed as white knights of economic justice–with promises to do what BND does and support small business lending and regulatory compliance among community banks. North Dakota bankers like it and have been willing to say that. Painfully few other leaders in the small-scale end of the financial sector have followed the lead. There are occasionally internal debates in the public banking movement about the utility of continuing to court community bankers, and the “everyone at the table” approach generally wins, though not always by much.

With no community bankers on board, earlier iterations of the movement were often energized by conspiracy theory types (who are sometimes right—I say “conspiracy theory types” more of a description of their political praxis than their particular beliefs) who’d recently read Ellen Brown and learned that, according to a widely supported theory of banking, banks create money by lending it.

But the dominant “banks create money” narrative is a kind of potential red herring to public banking as a political movement. It’s not what chiefly motivates the divestment-oriented eco-justice and new socialist proponents of municipally-owned banks. The language of the narrative, the kind of “look what we discovered about banking that Wall Street doesn’t want you to know,” probably does more harm than good. I get that it’s a compelling and sound argument. But even if banks do not “create money” they do facilitate the creation of value and liquidity, and have the power to erase the practical distinction between having and not having money. Even if “money creation” is more metaphorical than real (there are good reasons to think it’s both), it stands for the proposition that banks are extraordinarily powerful entities in financial infrastructure and for that reason, irrespective of any others, they should be publicly owned.

Mobilizing around that “secret” about banks has made for some strange bedfellows since the beginning, and so at least until the divestment and economic justice movements re-acquainted themselves with public banking, it has been too esoteric, evidenced by the handful of leading public banking exponents who are vocal Trump supporters (in the service of which they make or retweet embarrassingly stupid arguments which I will refrain from linking to here). Some of these people are carry-overs from the section of the movement informed by the anti-banking, anti-federal reserve positions associated with G. Edward Griffin, a Bircher whose 2009 conference on Jekyll Island off the coast of Georgia helped build the white supremacist militia movement. Anti-Semites and authoritarian-fetishists saw public banks as a means to dismantle the imagined “Jewish hold” over private finance capital, or allow strong dictators to quickly fix the economy. Similarly, in many ways, the “free money” section of the public banking narrative is more a libertarian wish-dream than a democratic socialist template. If we’re careless, all of this becomes a way of bypassing democracy, not actualizing it.

But since Trumpism and vaguely antisemitic conspiracy theories are grounded in the same essential worldview as neoliberalism and finance capital, the right-wing public banking advocates can’t effectively defend the movement from attacks by the finance industry in the form of negative feasibility studies. There’s a fundamental disconnect in someone who believes banks should be run by municipalities in the public interest but also stands by Trump. Allies like that are distractions at best. At worst, they represent the desire for a fantasy-world of authoritarian state capitalism, where powerful demagogues or fascistic parties control giant “public” banks so they can control or quickly fix troubled sectors of the economy, eliminating material rivals rather than being subject to the kinds of deliberative and transparent community control characteristic of, say, democratic socialism.

Public banks may provide a means of sustainable growth. Unless engineered by oligarchs, they will not provide the kind of growth that pleases powerful investors or allows speculation and gambling with other people’s money. But those are precisely the things capitalism presently wants. Public banks won’t save capitalism as it manifests today, and there is no political or policy trajectory towards an “ethical” capitalism, a “green” capitalism, or any other kind of non-exploitative, non-extractive capitalism. The individuals and small groups associated with such visions have no political roadmap, even though they are often smart and nice people. There is no mass movement behind them, nor is there the ground to build such a movement. The occasional entrepreneur-with-the-innovative-solution-to-poverty isn’t enough. Elites can’t, and won’t, transform the material conditions that made them into elites.

What all this ultimately means is that we need democratic, public-centered, commons-centered control of our finance, period. It may not matter what that looks like. There are many great models, some transitionary, some that compromise too much in my opinion, and many that don’t.

Ultimately, economic and ecological justice can’t be about “bringing everyone to the table.” It has to be about bringing willing stakeholders to the table, and rendering the unwilling (and materially predatory) parties irrelevant. It’s been encouraging that movements across California, from Los Angeles to Oakland to San Francisco to Santa Rosa, have begun to adopt that more militant, egalitarian, justice-oriented praxis. I really hope the best for them in the face of yet another rebuke commissioned by conservative public officials and written by those for whom economic democracy is foundationally alien.

Matt Stannard is director of Solidarity House Cooperative and writes, researches, and teaches about cooperative law and economics. He served as policy director for Commonomics USA, and was communications director and later a board member for the Public Banking Institute.

Matt’s Public Banking Series at Occupy.com

by matt on May 14, 2018

Occupy.com is publishing my ten-part series on public banking, “the good, the bad, and the ugly” of the movement, as I told editor Mike Levitin. Here are Part One, Part Two, Part Three, Part Four, and Part Five, which was just published today.

Main themes: Public banks are tools, not ends in themselves. It matters how we message them. Thus far, technocratic and even conspiratorial rhetoric has dominated the contemporary movement, although historically, successful public bank advocates (the Non-Partisan League in North Dakota, the Quakers, and even the medieval clergy, have been motivated by strong visions of economic justice. Money, debt, interest, sovereignty–these are all ways of describing material relationships. The foremost question of political economy, and the most important policy question in creating a just banking system, is to co-create and meet needs in sustainable ways. Public banking is an important step on that journey. Again, it matters how we issue all the demands and create all the things.

Part Three is a little bonus story-within-the-story: How a whole lot of California public banking and cannabis activists, and a small organization (Commonomics USA) helped evolve the State Treasurer’s Cannabis Banking Working Group into a test case of arguments for and against public banking–and ultimately a proponent of the paradigm. This was a big deal in my mind, because John Chiang began his leadership of the Working Group by saying its goal was to provide to the cannabis industry the same private banking service other industries get, and has wrapped it up by calling for the exploration of a public banking system that would run across the state’s gargantuan economy while staring the DOJ in the face. That’s some evolution. It’s hopeful stuff.

If you’re interested in all of this and have stuff to say, let’s think about getting some discussions on a podcast–yours, someone else’s, mine, whatever. And, as you might imagine, these ten articles gotta be compiled after the series, so look for whatever package that ends up becoming.

Mug Shots and Bankruptcy Proceedings

May 11, 2018
Matt Stannard

The other day I stumbled upon this example of the practice of publishing people’s bankruptcy proceedings. Declare bankruptcy at the U.S. Bankruptcy Court in Spokane, and the Tri-City Herald will publish your name, address, total debts, and total assets.

They’re a matter of public record, of course, but one’s conscience asks why such painful information needs to be publicized in this way (if there are public policy-oriented reasons for disseminating bankruptcy information, surely there are better ways to do it), even as one’s legal mind may understand the theoretical reasoning: Bankruptcy is the public legal forgiveness of debt.

But as I cited in a recent public banking article over at Occupy, debt itself is a political and sociological invention.

In his 2011 book Debt: The First 5000 Years, anthropologist David Graeber chronicles the transition from communal systems of sharing – including shared obligations – to capitalism’s assimilation of all relationships into a system that generates profits for investors. Integral to that process is the individuation (and demonization) of debt, one of the many relationships that are stripped away, often through literal violence.

 

In addition to Graeber, in that article I also cite Linda Coco, a law professor and innovative legal clinician concerned with how debt and financial distress damage us. I learned about Professor Coco’s work when I read her 2016 article on bankruptcy as discipline in the Wyoming Law Review. Concerned with how bankruptcy court procedures construct and reinforce a narrative of fiscal failure, Coco concludes:

The bankruptcy petition codes [petitioner’s] financial life according to a legal and procedural logic found in the bankruptcy legal world . . . [their] financial lives and their identities are properly rendered into a recognizable pattern. Their information is fixed within the grid of the schedules and organized over time in the Statement of Financial Affairs. Their financial life is organized and controlled. It becomes legible in two-dimensional space. It is clearly analyzed and rendered for and in the bankruptcy process . . . a normalizing force in American social and cultural life. The internalization by disciplinary techniques of these dominant discourses results in the collective doxa of a group in which “more and more people must attune their conduct to that of others, the web of actions must be organized more and more strictly and accurately, if each individual action is to fill its social function. Individuals are compelled to regulate their conduct in an increasingly differentiated, more even and more stable manner.’  Therefore, discourses of economic utility and individual responsibility create the standards by which individuals compare themselves to each other, the manner in which individuals distinguish themselves, the way that individuals rank and measure each other, generate ideas of good and bad, and ultimately decide what is normal and abnormal behavior. The social group views individuals experiencing over-indebtedness and financial distress as aberrant. Financial failures are people who have not mastered the requirements of economic productivity and utility. According to the economic utility models, individuals experiencing financial difficulty are believed to be unable to exercise restraint and self-control.

Professor Coco’s article is a profound exposition of an insidious ideological machine. Another law professor, similarly concerned, is Mehrsa Baradaran, whose recent prolific work effort proposes that we create supportive, rather than adversarial, relationships with our financial structures. For Baradaran, this reformation includes a more authentic and class-conscious interpretation of the Bank Holding Company Act’s public benefits requirement, and the creation of postal banks with a mandate to provide credit and liquidity to the economically marginalized.

Those would be relatively modest reforms, if we’re being honest with ourselves. But conventional American economic thinking sees such proposals as pretty much Fully Automated Luxury Gay Space Communism. If such a reconciliation of Americans’ material vulnerability with the building of democratized and compassionate financial utilities is difficult to conceive in the present moment, one reason for this is the not just the ritualized discipline of financial failure, but also its ritualized spectacle. These newspaper bankruptcy notices are a manifestation of that spectacle. They are like, although perhaps not completely like, “mugshots” magazines available for sale (because people buy them) in gas station convenience stores across the Midwest.

“Of all capitalism’s tricks,” I wrote in the Occupy article, “the trickiest is convincing people that debt, credit and currency have an objective existence and power beyond what we give them.” Marching debtors out naked onto the public stage while their debts and assets are called out as dry, existing things is one way to reinforce that topos.

Featured image: Philip Nicholas Bankruptcy Proceeding, signed by John Quincy Adams as Commissioner.

On Banking, Heitkamp Forgets Where She Lives

by Matt Stannard
March 14, 2018

Elizabeth Warren is in a bloody fight with the handful of Democrats who support new GOP legislation to roll back Dodd-Frank requirements on banks. The new legislation loosens regulations for smaller “community” banks, but also for the biggest, too-big-to-fail, often criminal banks at the top of finance capital’s food chain. One of the Democrats joining the GOP in that rollback effort is North Dakota’s Heidi Heitkamp, who said of Warren on this matter, “She doesn’t live where I live.”

But Heitkamp lives in the state with the country’s only public, state-owned bank, the Bank of North Dakota. And although she told The Atlantic‘s Russell Berman a sob story about “Democrats [watching] as smaller banks and lenders in their states have been eaten up by larger institutions, due in part to the added burden of regulations created by Dodd-Frank,” there are a couple of half-truths at play here, and Heitkamp should know better.

First, Dodd-Frank has been little more than an exacerbating factor on what was already a steep decline in community bank viability. As J.V. Rizzi wrote in American Banker a few years ago:

There are many things to dislike about the Dodd-Frank Act. Causing the demise of community banks, however, is not one of them . . .  the number of community banks with assets under $100 million dropped from 13,000 in 1995 to 2,625 in 2010–before Dodd-Frank was enacted. The number of small community banks had dropped under 1,900 by 2014.

Second, and even more to the point of why Heitkamp’s position is so weird: the Bank of North Dakota has kept community banks alive in that state through financial support for community bank loans, and regulatory compliance support. The results have been astounding if one compares North Dakota’s community banking scene to the rest of the country. I once explained why in a blog post I wrote for the Public Banking Institute:

Public banks offer unique benefits to community banks, including collateralization of deposits, protection from poaching of customers by big banks, the creation of more successful deals, and . . . regulatory compliance. The Bank of North Dakota, the nation’s only public bank, directly supports community banks and enables them to meet regulatory requirements such as asset to loan ratios and deposit to loan ratios. . . . [I]t keeps community banks solvent in other ways, lessening the impact of regulatory compliance on banks’ bottom lines.
We know from FDIC data in 2009 that North Dakota had almost 16 banks per 100,000 people, the most in the country. A more important figure, however, is community banks’ loan averages per capita, which was $12,000 in North Dakota, compared to only $3,000 nationally. . . . During the last decade, banks in North Dakota with less than $1 billion in assets have averaged a stunning 434 percent more small business lending than the national average.

Stacy Mitchell reached a similar conclusion:

With 89 small and mid-sized community banks and 38 credit unions, North Dakota has six times as many locally owned financial institutions per person as the rest of the nation. And these local banks and credit unions control a resounding 83 percent of deposits in the state — more than twice the 30 percent market share that small and mid-sized financial institutions have nationally.

And so did Ellen Brown, who provides some background on how BND was mandated to help with compliance:

In order to help rural lenders with regulatory compliance, in 2011 the BND was directed by the state legislature to get into the rural home mortgage origination business. Rural banks that saw only three to five mortgages a year could not shoulder the regulatory burden, leading to business lost to out-of-state banks. After a successful pilot program, SB 2064, establishing the Mortgage Origination Program, was signed by North Dakota’s governor on April 3, 2013. It states that the BND may establish a residential mortgage loan program under which the Bank may originate residential mortgages if private sector mortgage loan services are not reasonably available. Under this program a local financial institution or credit union may assist the Bank in taking a loan application, gathering required documents, ordering required legal documents, and maintaining contact with the borrower.

So Heitkamp’s invocation of North Dakota is curious. I can’t say I’m surprised though: BND has saved conservative North Dakota’s financial ass countless times, but state officials and electeds hate acknowledging this–in fact, they almost never do in mainstream contexts.

Warren’s criticism of the new Senate bill is sound. The bill ultimately exempts all but only the top 12 banks in the country from regulations and stress tests. The worst thing Warren is guilty of in this instance is believing (or acting as if she believes) that for-profit banking can be saved at all. We can have that debate another time (I personally believe capitalism makes the consolidation or death of small banks inevitable without massive state intervention). But Heidi Heitkamp’s omission of her own state’s success in propping up an otherwise anemic community bank industry is, to use current parlance, sad.

Matt Stannard writes on cooperative economics, law, and sustainable farming. He was policy director at Commonomics USA and a board member of the Public Banking Institute.

Activists Urge California Public Bank Not Limit to Cannabis Revenue

Grassroots public banking activists respond to CA Treasurer’s Request for Information

by Matt Stannard
March 3, 2018

Commonomics USA (the organization I used to be policy director for, and for which I still serve as a consultant), along with public banking advocacy groups from Los Angeles, Santa Cruz, San Jose, Oakland, San Francisco, Santa Rosa, and Eureka, California, have written a response to California Treasury Secretary John Chiang’s Request for Information concerning a public bank in California, which was written after a year’s worth of public hearings on California’s cannabis banking problem.

That RFI (an RFI is a standard business and governmental procedure made prior to undertaking large projects) was released in late January. But there was a problem with it: It did not reflect the public demand that sparked it. And, given the final direction and gestures of the Working Group, that was a surprise and disappointment.

It should be noted (I’m presently working on a longer piece telling this story) that the public banking movement overwhelmed, and fundamentally changed the focus of, what was initially a reluctant Cannabis Banking Working Group. In early sessions of the CBWG hearings, Chiang went out of his way to instruct participants not to advocate for public banks in general; early scholars invited to the San Diego session insisted public banks were not feasible, and the Working Group was even, at times, jovially dismissive of the idea.

But everywhere the CBWG went, members of the public, during the open comment periods, insisted not only that the Working Group consider a public bank for cannabis revenue, but that it consider a public bank categorically. While Chiang continued to insist that comments be limited to the problem of banking cannabis revenue, members of the public ignored that limit and advocated for the general benefits of public banking.

Chiang’s eventual response was impressive: Rather than further scolding members of the public, the Working Group announced a previously unscheduled hearing in Los Angeles devoted exclusively to the question of public banks, and further, that such a discussion should not be limited to cannabis revenue, but be inclusive of general arguments for and against public banking.

I continue to admire Chiang for that piece of brave leadership (among the privileged, public banking is still seen as a fringe movement, even after New Jersey’s new governor, Phil Murphy, campaigned on creating one in that state). Chiang could have taken a safer way out. Many of us are glad he didn’t.

Nevertheless, the Working Group’s RFI does limit itself to “studying the various administrative and operational structures for organizing a public bank or state-backed financial institution to serve the cannabis industry.” And this has raised the ire of the many groups across California demanding divestment from big private banks and the embrace of a radically democratic model of public finance (more radically democratic, even, than anticipated by the rather conservative, fossil fuel-supporting, pro-police state Bank of North Dakota).

The letter in response, linked below, argues that the best way to envision a public cannabis bank is by envisioning a public bank that is not limited to cannabis:

We invite you to share our vision: a network of public banks (intrastate municipal/regional banks and interstate state banks) that provides a distinct alternative to depositing public monies into Wall Street banks, reflects California’s environmental priorities and social values, and becomes California’s legacy for future generations.
Public banking, at its core, is a shift in the state’s role from mainly providing bank regulatory oversight to also providing banking services, thereby addressing commercial banking market failures. Public banking shares the original ambitions of the postal service, delivering mail to every household, and the rural electrification program, electrifying all of rural America. In our envisioned network, each public bank will provide banking services to its defined community – filling gaps where the market has failed to fully provide affordable deposit, credit, and other investment services. State banks would provide low-cost (probably internet-based) deposit services to large segments of the unbanked population and create pools of credit for large infrastructure projects, affordable housing, and student loans. Municipal and regional banks would focus on developing the small business lending and local investment market; developing financially-responsible alternatives to predatory financial schemes, such as bail bonds and payday lending; and financing local infrastructure projects, including renewable energy and disaster recovery.
The failure of the market is profound and more widespread than is commonly understood. The lack of banking services for the cannabis industry is only one example of this failure. Over 20% of California households are un/underbanked, as documented in 2015 by the FDIC. And, given the ongoing disaster recovery efforts in northern and southern California, the lack of immediate and affordable credit for municipal governments as these communities struggle to rebuild after the fires and floods is a clear shortcoming of the market. Unfunded infrastructure, unfunded new Community Choice Energy organizations, and unfunded affordable housing for public service workers can be financed through a state or municipal public bank. Finally, the state’s revenue shortfall and liquidity crisis during the Great Recession, made worse by the refusal of banks to honor the state-issued IOUs, is another critical example of the need for credit. Without a broader vision, this particular public bank effort by your office may be perceived as exclusive or discriminatory. Such a perception so early on in the public bank feasibility process may be cause for otherwise avoidable resistance from both the public and the Federal Reserve, which may view a public bank “dedicated entirely, or predominantly, to the cannabis industry” as concentrated deposit risk. Moreover, since the Federal Reserve is tasked with addressing financial inclusion, it may be receptive to an expanded definition of financial inclusion based upon a critical analysis of the market failures of the commercial banking system.

While the letter includes specific suggestions that will be helpful to the cannabis industry (such as automated retail cannabis payments), its larger message is that a whole-state, economic and ecological justice approach to public banking is advantageous for the limited policy objective of cannabis banking, because more stakeholders will sign on, and even because the Federal Reserve will be more likely to entertain giving a Master Account Number to a broadly-mandated bank than a narrow one whose only purpose is to circumvent (or, to put it more charitably, make up for the gaps in) federal law. Thus, the response letter suggests “conduct[ing] an ‘intersection’ study throughout state government and its agencies that identifies the specific state social, economic, and environmental policy objectives that a public bank can achieve.”

The letter may be downloaded here:
030218 Letter in Response to RFI

A Quick Q&A: Phil Murphy & Public Banking

by Matt Stannard

Q: Phil Murphy campaigned for New Jersey Governor –and won– on a public banking platform. What’s a public bank?

A public bank is a state- or city- (or other government entity) owned bank. The bank typically takes as its deposits the revenue or holdings of that government entity (such as taxes). The bank then lends to various entities and can do so at low- or no-interest, in order to finance public goods.

The only significant public bank in the U.S. now is the Bank of North Dakota. BND is one of the most powerful and solvent banks in the country, and it makes low-interest loans to the state for infrastructure; to municipalities to build schools and repair things; to farmers; to students (it supports student loans and offers good refinancing options); and to small businesses. BND supports community banks in North Dakota, and because of it, the state enjoys the healthiest small banking sector in the country.

There are public banks, or strong public banking sectors overall, in other countries like Germany and Costa Rica. Germany’s public bank has helped finance that country’s cutting-edge post-carbon energy transition.

A public bank has been a central piece of Murphy’s economic agenda, rather than just some idea he’s casually mentioned. He’s a believer, which puts him in a small list of good company that includes Bernie Sanders.

Q: Why do public banks have such potential?

Banks, whether private or public, have the power to create value through fractional reserve lending. Although it’s somewhat misleading to straight up say banks “create money out of nothing,” they sort of do that: If I borrow $10,000 from my local bank, it’s not like they go downstairs to their vault and bring out $10K in cash to give me. They essentially create $10K in credit. I pay them back with interest. That’s how they make money.

The theory behind public banking is: “Banks have a lot of power to generate public value. That power should be treated as a public utility, not just a private business.” Private banks have to make profits to satisfy their shareholders. Public banks make a (small) profit too, but that surplus can be paid back into the state or city coffers, essentially creating dividends for residents, all the while lending in the public interest.

Public banks keep communities financially healthy in hard times because their economic benefits run “countercyclical,” lending at low interest when private banks won’t lend even at high interest.

Public banks also help break state and local governments’ dependence on risky Wall Street finance. Had a public bank been in place in New Jersey starting around twenty five years ago, it could have helped the state save over a billion dollars on pension fund fees alone.

Q: But I thought Murphy had been a Goldman Sachs executive. Wouldn’t Goldman Sachs hate public banks?

I wrote about this question a year ago when Murphy announced his candidacy, in an article entitled “In Praise of Class Traitors.” I interviewed my former colleague at the Public Banking Institute, Ellen Brown, who speculated that a person from the financial sector might be exactly the kind of politician with the credibility to push a public bank. “Our biggest hurdle has always been that legislators don’t understand how banking works,” she told me. I also interviewed socialist economist Rick Wolff, who said Murphy probably “knows what shenanigans go on in big banks and investment houses like Goldman,” but that “as a Democrat, he cannot attack pensioners the way other, especially Republican governors have,” and that a public bank would, among other things, be “less politically costly” than letting pension plans burn.

Q: Why should we trust Murphy? Once a thief, always a thief, right?

I’ve already seen many of my friends on the left express skepticism about Murphy based on his banking pedigree. I get it. That skepticism is healthy. But Murphy is Governor of New Jersey now whether we think he should be or not, so let’s see what happens. He wouldn’t be the first person of privilege to facilitate egalitarian economic ideas. He wouldn’t even be the thousandth.

Q: How hard will it be for Murphy to actually establish a public bank in New Jersey?

There will certainly be a lot of hurdles to overcome. The legal hurdles will likely revolve around New Jersey’s constitutional prescription against the state “lending of credit.” But overcoming that hurdle will be relatively easy, Such provisions didn’t prevent North Dakota from running its own banks, and several other states (and Puerto Rico) have quasi-public infrastructure banks that offer loans and credit assistance to public and private sponsors of construction projects. After all, in the status quo, Governments deposit their revenues and invest their capital in private banks. Those banks, in turn, lend money–but they aren’t “lending the state’s credit.” The banks lend their own credit, which is distinct from the “credit of the state.” This distinction may seem complicated, but it’s good enough for the courts. Throughout the 19th century and in reference to the Bank of North Dakota in the 20th century, courts have agreed with states’ efforts to have public banks lend money instead of private banks.

The larger hurdle will be political–and this is where the public banking movement often flounders. Opposition from the private banking sector will be fierce. Wall Street will lie, steal, and cheat to discourage public officials from opening public banks.

What will be needed is a mass movement of people in New Jersey willing to write letters, make phone calls, and physically show up to demonstrations in favor of Murphy’s efforts (assuming Murphy goes forward with a public bank). It’s not like there will be many counter-demonstrators. But public officials are risk-averse, and there will be rich people in suits telling them not to do it.

In other words: Public banking is a good idea, but being a good idea is not enough. It’s not even enough, in an age of Wall Street hegemony, to be the Governor of New Jersey and push for a public bank. You need lots and lots of ordinary citizens willing to keep issuing the demand loudly and clearly.

Q: Where else are people pushing for public banks?

All over the place! City governments, spurred on by local economic justice coalitions, are exploring public banking all across California. Santa Fe, New Mexico is in its third stage of policy study on implementing a public bank. There are vocal movements and sympathetic public officials in Washington, Oregon, Hawaii, New York, Illinois, Pennsylvania, New Hampshire, Maine, and at least a dozen other states. Whether they succeed or not will depend on whether they have behind them large coalitions of people willing to push past the resistance they’ll encounter from big banking interests.

Q: Will a public bank usher in an era of egalitarian, socially responsible, progressive economic policies?

This is a good question–and the answer is another reason why public banking requires a mass movement in order to work effectively. Public banks in and of themselves are not a guarantee of good economic policy, and are especially not a guarantee of economic justice. For all the positive aspects of the Bank of North Dakota (disaster relief, support for farming, building schools and community centers on the cheap, supporting local business development), that conservative state has used its socialist bank to do things like finance fracking and a toxic oil economy. The BND even financed police repression at Standing Rock last year through its emergency financing program–probably the most depressing and hurtful use of public financing we’ve seen in a long, long time.

The lesson here is that public banks are tools, and whether a tool is used to build good or evil things depends on who wields it. But in the hands of a democratic government committed to transparency, ecological sustainability, and socioeconomic justice, a public bank can do incredible good.

Matt Stannard is a legal and policy advocate for sustainable farming and cooperative economics. He previously served on the board of directors of the Public Banking Institute and was policy director for Commonomics USA.

A Stakeholders’ Case for Public Banking and a Public Cannabis Bank in California

by Matt Stannard and Marc Armstrong
Commonomics USA
Presented to Cannabis Banking Working Group, Los Angeles, California, August 10, 2017

As our organization, Commonomics USA, is concerned with policies that prioritize the commons, we talk a lot about stakeholders. Stakeholders are also an appropriate place to start in this meeting, because neither a Cannabis Banking Working Group nor a special session on public banking would exist but for strong public demands: for a policy of legal recreational cannabis, for financial protection and security for the MRB industry, and, as we’re seeing throughout California, for public banks.

 

 

When viewed from the lens of stakeholder needs, the question becomes what banking system creates security, predictability, opportunity, and sustainability for the primary stakeholders in California’s transition to a new cannabis economy. Those stakeholders are (1) California residents, who voted to regulate rather than prohibit recreational cannabis, but want to be free of crimes, including financial crimes, associated with marijuana-related finance and commerce; and (2), California marijuana-related businesses, of whom many cities are paying special attention to businesses emerging from communities historically victimized by the war on drugs.  In Commonomics USA’s experience, publicly-owned and maintained systems often do a better job meeting those particular needs–security, predictability, opportunity, and sustainability–than privately-owned systems, for the greatest number of stakeholders, and especially for disadvantaged stakeholders.

California needs a solution to the cannabis banking conundrum by January 2018. As statements to the Working Group have established, private banks are reluctant to “touch” cannabis money absent a prior “first touch” by the State of California. Although it is unclear whether the federal Department of Justice has the resources or political capital to hinder commerce in states that have legalized recreational cannabis, and experts have told this Working Group that the Cole Memorandum and FinCEN guidelines might “prove to be more resilient” than many suppose, federal prohibition is vexing, particularly with respect to financial transactions for MRB money, and especially against the backdrop of a DOJ led by a vocal critic of recreational marijuana.

The legal and policy context for these problems is ambiguous and unpredictable. The federal government has not explicitly asserted that states cannot set different controlled substance schedules and policies. As legal scholars have pointed out, certain provisions of the CSA seem to anticipate this. Moreover, the United States Supreme Court declined to hear an objection to state-level legalization from other states. Meanwhile, the state of California collects taxes and fees from California MRBs now and will continue to do so no matter how this Working Group answers the banking questions. The federal government, through the Department of Justice and Department of Treasury, has not seriously questioned the tax and fee revenue from California MRBs and there has not been a distinction between tax and fee revenues from medical and recreational cannabis .

This raises interesting philosophical questions: When the state government touches that money, what is the legal basis for it being clean enough to be deposited in a bank? Is the state compromising its fiduciary responsibilities by assuming that these monies are not at risk of seizure? Is mixing tax receipts between different industries merely perpetuating the obfuscation and lack of transparency of an underground economy? We ask these questions because we believe that the legal basis for the state’s ability to legitimize cannabis money needs to be built and made explicit.The federal government has jurisdiction over interstate commerce, but California needs to develop the legal and policy framework for in-state commerce of a product that is federally illegal and, in the case of recreational cannabis, potentially the target of federal hostility. A public bank solution will allow California the opportunity to express the first iteration of the terms of any such answer–by asking the administration and the Federal Reserve banks whether the policy objectives of federal financial crimes and drug laundering laws favor a centralized state bank in the driver’s seat, or a continuation of the decentralized, ad hoc, and often surreptitious practices of cash collection and quirky experiments by small private banks.

Rather than looking at this as a cannabis problem, this is really a banking problem–a problem of the inability/unwillingness of the private banking sector to address both a segment of the population and a pressing social need. That’s a familiar situation for those of us in the banking and public policy world–particularly those of us interested in public banks. In fact, as California stands at the precipice of a cannabis banking crises, it is also immersed in two other banking crises, slow-burning problems that hurt the state’s communities and its economy. The first is the economic toll that big private banks have taken on the state. California’s state and local treasuries have suffered greatly under the interest rates and fees charged by big banks, the costs of financing infrastructure and development, and the reluctance of private finance to fund the kinds of development Californians need. Capital appreciation bonds saddling school districts with interest charges that dwarf the size of the principle are probably the most egregious, but the results are the same: costly public financing, lack of access to financing for public sector goods, and a cynical sense that we can no longer afford to fund good ideas.

The second banking crisis is the unavailability of basic banking services to so many Californians. According to the 2015 FDIC National Survey of Unbanked and Underbanked Households, almost 900,000 residents of the state lack basic banking services, and thousands more — over 19% of households — are “underbanked,” meaning they subsist financially with short-term and very expensive services. Lack of access to affordable services contributes to financial precariousness and insecurity, which is harmful to the individuals, families, and communities affected, and a barrier to sustainable economic security across the state.

So privately owned banks seem to trip over a number of market failures, of which cannabis revenue is one. The reasons may be different–in the case of cannabis revenue, a heavy-handed federal government–but the common denominator is that the tendency to view banking as merely a business opportunity rather than a public utility has meant and will continue to mean that huge populations are unserved, and huge public needs unmet.

But the State of California stands in a unique position to take on these challenges. California is the sixth largest economy in the world. Policy-wise, it has pushed itself ahead of the federal government and much of the rest of the nation on policies from post-carbon energy to family leave, from struggling to forge a universal health insurance system to protecting immigrant communities. New government-owned, nonprofit JPAs are being formed to produce renewable energy. One might say California is forging a new economy. We think a new economy needs a new bank–a bank of its very own, that leverages the power of banking based on deliberative policy objectives rather than using profit and loss as a starting point for financial policymaking.

After studying public banks and public banking campaigns for many years, and listening intently to the discussions in these Cannabis Banking Working Group meetings, as well as several divestment and public banking meetings across the state, we offer this four-stage proposal as a starting point for discussion.

The first phase would be the drafting and legislative enabling of a public bank: The Department of Business Oversight would define a Public Bank Charter for a depository bank serving the unmet banking needs of the California public. California’s legislature would pass the enabling laws to support and protect this bank license. In this phase, the state would develop a business plan as part of its application to the Federal Reserve Bank of San Francisco for a master account number. We believe that this phase can begin immediately and, as a matter of fiduciary responsibility, would lower the risk of the subsequent phases. Should the Federal Reserve Bank of San Francisco grant the master account to this public bank without a fight, the landscape dramatically changes.

The first phase also includes capitalization. Many possibilities exist for capitalizing the bank, including debt or equity financing, issuing corporate bond and pension funds with the cannabis industry or the general public stepping forward to participate; or even constrained common stock in the fashion of the ownership of the Green Bay Packers.

In the second phase, the state bank creates depository services for MRBs and the unbanked and underbanked. Limited commercial account services could include demand deposit account services, cash concentration services, depository reporting, and automated payroll deposits for employees. Core, low-cost, retail banking services for the un- and under-banked market could include simple transactional and savings accounts, automated payroll deposit, peer-to-peer money transfer, international remittances, and debit cards. Low-cost methods used to access bank accounts could include online devices, existing ATM/Kiosks, and mobile phones.

In the third phase, the bank develops its capacity for risk management, compliance automation, and payment automation. The objective would be to lower the cost of compliance by using analytics and monitoring software to provide important reports using automated procedures and monitoring products. This Working Group has already heard about these capabilities from other participants. These products will provide greater transparency to the financial system. These participants have also mentioned payment automation capabilities, and we recommend that this phase includes this important technology. This can be done with an app that would complete payment transactions between cannabis consumers and cannabis businesses with an account at the public bank. If necessary or desirable, it could avoid the VISA, MasterCard and American Express network and transfer funds from the buyer’s California bank account to the seller’s account in the public bank.

In the fourth phase, the bank provides credit, lowering the cost of public financing, using public credit instead of taxpayer money or municipal bonds for the construction of schools, toll bridges, water and sewer systems, and a sustainable post-carbon energy system. Many additional public goods require financing and have huge social and economic payoffs, from affordable housing loan programs (including loans directed to public employees), that help people live in the same communities where they work, to loans for cooperative startups. The bank could also use its public credit to provide lower costs to wage earners saddled with student loan debt, helping a demographic that has, by many measures, gotten a raw deal in California.

There are four main benefits that a public bank can provide:

  1. Satisfies unmet market needs. In the event of market failures, when private banks are not able to meet the needs of the banking market, a public bank is able to be used to fill in the gaps, to provide deposit account and credit services where there are none.
  2. Cost savings. A public bank has a lower cost of doing business (no bonuses, no extreme salaries, no dividends, etc.) that can be passed on to borrowers, whether students, businesses or municipalities.
  3. Economic sovereignty. A public bank is a democratic approach to public finance, involving both the public and other stakeholders in the loan portfolio decisions.
  4. Counter Cyclicality. A public bank’s equity is not publicly traded on a stock market and is not subject to the same changes in valuation in as rapid a pace as we saw in 2008 and 2009 stock market, where some banks lost upwards to 80% of their equity. Because of this, public banks have the ability to continue to make loans precisely when private banks are terminating lines of credit, ending loan programs, and not accepting deposits.

Some folks, including a public official or two, are tired of public banking advocates bringing up the Bank of North Dakota. So we will only bring it up to explain that there are many roads to banking democracy This proposal, as presented, does not suggest transposing the BND model onto the State of California. It isn’t a proposal to use California’s assets to capitalize the Bank or to seek partnership with or underwriting of the private banking industry. In the wake of natural disasters, BND has the ability to make bridge loans to businesses and homeowners before they are reimbursed by FEMA and suspend mortgage and student loan monthly payments. In 2015, BND obtained more than $2.5 billion in public deposits through pledging services for private banks, in addition to providing $679 million of liquidity through BND’s secured and unsecured federal funds lines. Our proposal doesn’t preclude any of that, but it doesn’t require any of that.

The process outlined in our proposal should occur in tandem with the ongoing effort to relax federal law, consistent with the recommendations of Erwin Chemerinsky, Jolene Forman, Allen Hopper, and Sam Kamin, in their UCLA Law Review article “Cooperative Federalism and Marijuana Regulation.” Passage of the SAFE Act, a robust reaffirmation or strengthening of Cole-style and FinCEN guidelines, all as part of the ongoing effort to reach out to rational federal policymakers–who we believe really do outnumber the louder and less reasonable voices in Washington. California is likely to make that request to the federal government anyway. But doing so having created a public bank in the world’s sixth largest economy, a bank committed to financial oversight of cannabis banking as a matter of public policy, creates a very different context for the dialogue between the federal government and the states concerning cannabis.

Similarly, if it is to find any “banking”-based solution to MRB revenue’s federal illegality, California will inevitably have to face the question of obtaining a Master Account Number from the Federal Reserve Bank of San Francisco. Why not, then, have the State of California itself, on behalf of a state-owned bank with unprecedented control over the cannabis economy, make that application?

Most people in this room understand the general case for public utilities meeting unmet market needs and, specifically, public banking doing the same. As movements in Oakland, here in L.A., and in other parts of the state suggest, there is widespread support for exploring public banking in California. But the reason we’re having this conversation, here with the Cannabis Banking Working Group, is that this is a “try or die” moment for the cannabis banking question. Some entity or collection of entities must inevitably dialogue with the sources of current federal complications concerning cannabis banking. From a stakeholders’ perspective, we believe it makes a lot of sense for that entity to be the State of California–affirming the decisions the people of the state have made, owning those decisions.

This is a chess game, with economic sovereignty being the big win for California. Understanding the possible moves that the federal government can make is critical. We assume, for instance, that recreational cannabis tax revenue can be collected and placed in one of the state’s accounts in a private bank. What if, in the Attorney General’s quest to disallow recreational use of cannabis, this regulation is changed to disallow this recreational cannabis tax revenue from being legally deposited in private banks? California can collect the tax, but it’ll end up with the same banking issue now experienced by MRB’s. There will be yet another run on pickle barrels, only this time the state will be buying them.

What is needed is a body of state law that creates a Public Bank Charter (or license), defines “municipal affairs” for state charter cities, sets standards for in-state commerce of recreational cannabis, and protects Californians so that they may conduct safe economic transactions in the currency medium of choice.

A public bank can then be created in order to act as the organizational bulwark, protecting California’s interests by meeting unmet market needs and issuing deposit accounts to MRBs and the unbanked, efficiently handling the federally mandated compliance issues, automating payments (including tax payments), and making California’s economic sovereignty a reality.

A public bank acting as a necessary public utility that provides banking services to MRBs, to the unbanked and underbanked, and for lower cost infrastructure and commercial financing, can help California use its status as a global economic power, and its huge economies of scale, to create the appropriate financial infrastructure necessary for this undertaking. The decision to create such a bank as a solution to the cannabis conundrum would send an unprecedented signal to the world that California is stepping into a new cannabis economy and a banking economy that meets the needs of all Californians, businesses no matter the industry, and municipalities.

Matt Stannard is policy director of Commonomics USA. Marc Armstrong is president of Commonomics USA.