Public Banking

Public Banks and Credit Unions: What’s the Difference?

by Marc Armstrong

Anything that takes control from Wall Street banks is viewed by many as a positive development. Public banks, credit unions, and, to some extent, the new fintech firms all do this: they change the competitive landscape and provide a variety of services that appear to compete with traditional banks. Two of these players, public banks (of which the Bank of North Dakota is presently the only one in the United States) and credit unions, are considered by some to be in the same space, but they are actually quite different. This post will map out some of the key similarities and differences.

Public banks are government owned entities that act in a not-for-profit capacity to finance public goods, with their earnings passed back to the people in the form of lower interest rates on loans or government dividends. Public banks have many measures of democratic control, such as a more participatory form of governance. But since low interest rates on loans and local control are also the hallmarks of credit unions, what are the differences between public banks and credit unions?

The main difference is distinct and important: Thanks to the banking lobby, federal law prohibits credit unions from making commercial loans that exceed 12.25% of their total assets. This is a significant limitation that keeps credit unions out of the core business of banks: issuing credit. Of course credit unions can make consumer loans and mortgages, but this focus on member loans, savings, and other consumer-oriented services places them in the same market as most retail banks.

publicbankingworksPublic banks, on the other hand, are in decidedly different markets: commercial lending and public finance. They can ignore the retail sector entirely and have laser-like focus on generating credit to fund commercial and infrastructure loans. Because there is no need to provide costly retail banking services, an already crowded market in many areas of the country, public banks can be the engine for a state or city’s economic development program by providing affordable loans. Anyone who supports a good idea like renewable energy, worker-owned cooperatives, or effective public transit systems knows that very often the roadblock for each is always the same — lack of money. Without taxpayer funding many of these ideas die or the implementation gets postponed. But with low cost credit, available through a public bank, many of these good ideas can get funded. A credit union does not have the lending capacity of a public bank to fund these kind of loans, many of which run into the hundreds of millions of dollars.

There are other differences. Public banks are owned by government entities, while credit unions are owned by their members, who are the depositors, and with whom credit unions work collaboratively to share resources for convenience and savings. CU Service Centers and the CO-op ATM Network are two examples of this cooperation, something that a public bank as we normally conceive it would not consider (although new forms of public banking are always possible).

Both government-owned public banks and cooperatively-owned credit unions are ways to create more democratic approaches to banking. While their differences are significant, they both move in the same general direction, returning banking to our communities and sharing in the many benefits that come from localized control of banking.

Marc Armstrong is the president of Commonomics USA and co-founded the Public Banking Institute.

Oakland Passes Public Banking Resolution, Reaffirms Oakland As Sanctuary City

OAKLAND, CA – Tonight Oakland City Council unanimously passed Councilmember Kaplan’s Resolution calling for the City Administrator to look into the process of establishing a public bank for the City of Oakland.

Please click here to read the Resolution and accompanying Memo

The Resolution, co-sponsored by Councilmembers Kaplan, Kalb, and Guillen, directs the City Administrator to look into the scope and cost of conducting a feasibility study for public banking in Oakland and possibly the larger region. It also directs City Staff to solicit input from community stakeholders about the feasibility study, including suggestions of potential contractors and funding sources; and makes it clear that the study should cover the legality and feasibility of banking the cannabis industry.

The Resolution generated support from Councilmembers and community members alike. Matt Hummel, Chair of the Oakland Cannabis Regulatory Commission, reported that the commission fully supports the idea of a public bank for Oakland because of its potential benefits for the cannabis industry. Oakland activist Susan Harman said: “As Councilmember Kaplan recently returned from Standing Rock, it is important to note that Chase is one of the funders of the Dakota Access Pipeline. This is just another reason why Oakland should create a public bank – so the City can divest from its relationship with Chase.”

“I was thrilled to see the outpouring of support for public banking,” Councilmember Kaplan says. “Creating our own institutions is a beautiful example of how we can strengthen our community at the local level, and continue to build a more just and inclusive society, even in the face of troubling signs at the Federal level.”

The Oakland City Council also voted to reaffirm that Oakland will remain a Sanctuary City for immigrants, despite President-elect Donald Trump’s threat to cut federal funding to cities that do so. The Resolution prohibits the Oakland Police Department from enforcing Federal civil immigration laws and from using city monies, resources or personnel to investigate, question, detect or apprehend persons whose only violation is or may be a civil violation of immigration law.

The resolution also urges California to become a Sanctuary State.

“I am proud to be part of a City that stands up for justice for all,” Kaplan says, “especially now that the rights of so many are under attack.” Councilmember Kaplan also urged California Assemblymember Rob Bonta to take similar steps at the state level and ask California to identify itself as a Sanctuary State.

Kaplan added, “The most repeated teaching in the Bible is ‘Do not oppress the stranger, for you were strangers in the land of Egypt’ – we have a moral responsibility to protect everyone in our community, including those who are targeted for attack and discrimination.”

Source: Sheng Thao, Chief of Staff for Councilmember At-Large Kaplan

North Dakota’s Public Bank Is Funding Police Repression at Standing Rock

by Matt Stannard

The brutal repression of indigenous and allied protesters at Standing Rock has shocked the conscience of fair-minded Americans, particularly those advocating economic and ecological reform. Although the protesters had in some cases been encroaching on “company land,” they had done so peacefully, and their chief modes of political action have been prayer and nonviolent civil disobedience. The crackdowns of the last few weeks have seen attack dogs and rubber bullets causing bloody injuries to protesters, detention and malicious prosecutions, and other dehumanizing behavior from the cops and soldiers deployed there by North Dakota Governor Jack Dalrymple.

For those of us in the public banking movement, used to holding up the Bank of North Dakota (the nation’s only public bank) as an example of how promising public banks are, the recent news that Dalrymple and an emergency spending panel voted to add $4 million in additional credit onto a $10 million line from BND, to fund law enforcement expenses at Standing Rock, is troubling. It means BND is using its heralded public power over fractional reserve banking to pay for those rubber bullets and a host of logistical expenses involved in arresting and evicting protesters the federal government has refused to evict, citing free speech concerns.

This financing is part of one of BND’s core functions: providing emergency loans. A more positive deployment of that function happened in 1997, when BND provided emergency loans for the Grand Forks flood, at a time when communities desperately needed loans before receiving slow-moving FEMA reimbursements. Unlike the need to abuse peaceful protesters, the flood was a real public emergency–the flooding caused structure fires and destroyed dozens of buildings via fire or water. Property losses in Grand Forks topped $3.5 billion. There were 50,000 evacuees. BND provided over $70 million in funds for relief.

The Bank of North Dakota was conceived a century ago in the molding of distinctly American, agrarian-socialist populism. North Dakota farmers were in trouble, getting cheated by the big banks and big grain companies headquartered in Minneapolis and Saint Paul. Those entities knew they had farmers at their mercy, and so all the interest rates were double-digit, all the loan terms were unfavorable (and less favorable to those who relied on them the most), and as the grain companies operated every grain elevator along the railroad route; those companies offered farmers destructively low prices, often cheating on tonnage because the farmers had nowhere else to go.

In 1915, led by a struggling farmer named A.C. Townley, a group of North Dakotans formed the Nonpartisan League to push back against those powerful grain and banking interests. The NPL ended up taking political power in the state, creating both the Bank of North Dakota and the North Dakota Mill and Elevator. Today, those two public utilities are the only institutions of their kind under any state government in the U.S. They’ve long outlived the NPL, whose inexperienced political leaders were subject to constant attacks and red-baiting from big business interests, exacerbating NPL infighting and corruption, culminating in the recall of Governor Lynn Frazier, alongside whom the state legislature had created one of the most progressive state agendas in American history.

Since then, for understandable reasons, BND has been militantly apolitical. BND President and CEO Eric Hardmeyer has explicitly repudiated arguments that the BND ought to be a model, despite his effective touting of its successes. The Bank exists to help the state and its businesses function well and to maintain liquidity and economic stability. BND created the infrastructure for North Dakota’s oil boom, and if the state were to commit to a truly proactive transition to renewable and clean energy (it has taken baby steps), the BND would make it happen financially–with an efficiency that would put the rest of the country to shame.

But in the present political reality, cops and soldiers are brutally cracking down on Standing Rock protesters, and BND is funding it, and that makes BND not truly apolitical, but a facilitator of injustice. Public banks are tools, not sources of virtue in themselves. In the hands of bad policymakers, they can prop up bad policies.

So what do we do with this unfortunate knowledge, besides continuing to support the Standing Rock protesters, calling the governor regularly (if you do, please mention that using BND to finance repression is shameful), and pushing for a just and sustainable transition to clean energy (including economic support for energy sector workers and their families)? What do these unfortunate events teach us about our movement?

First, the awful actions in North Dakota don’t undermine the idea of public banking. If anything, they’re more evidence against private ownership and shareholding in both fossil fuels and the financial sector. In financing those rubber bullets and smoke bombs, BND is paying the security costs of private corporations, subsidizing the worst of big oil capitalism. But as my colleague, Ira Dember, pointed out to me yesterday, North Dakota is rich in wind and is building wind farms. That four million dollars could have been better lent to develop additional wind resources and technology, and to train workers to transition from oil fields to wind farms and more. That depends on a larger movement, which I’ll talk more about below.

Second, the actions illustrate the folly of pushing for state and local control without accompanying universal human and environmental rights. Economic and environmental justice advocates have long promoted local autonomy as a bulwark against big corporations and their puppets in national and state government. But local governments (often pushed by state legislators and governors) can do violence to indigenous communities just as they have enforced segregation and lynchings in the South. Human rights and environmental protection must be encoded in national and international norms and these norms need to have a complimentary and non-oppressive relationship with local communities. That makes our coalition-building and policy-making tasks bigger and more challenging. It makes allies and communication more important, and demands clarity about various movements’ and organizations’ ethical frameworks.

Third, you can’t keep people you disagree with ideologically out of single-issue movements. Sometimes this can be frustrating: There are all sorts of people in the public banking movement, including a few supporters who aren’t committed to ending fossil fuel consumption, and even weirder and more disturbing, a tiny handful of extremists who want to take down big private banks because they associate banking with Jews. Thankfully, those toxic forces don’t show up in any significant numbers (and the Public Banking Institute has explicitly repudiated them). While the movement is primarily white and bourgeois, there are powerful non-white, non-bourgeois voices in it, and its alignment with the New Economy Coalition and other economic justice coalitions helps considerably. It matters who you do your activist business with.

Finally, whatever your own organization’s commitment to justice, the policies and institution your movement creates, if it is lucky enough to create them, will only be as socially positive and ethically correct as the people working inside of them, and the communities overseeing them. Public banks can fund a post-carbon, sustainable energy transition–but only if people successfully demand a post-carbon, sustainable energy transition. Public banks can create safe and prosperous communities for all, but only if that’s what communities are already committed to.

Public banking advocates, in particular, ought to emphasize the ways public control of state and municipal finance can fund new structures of work and production that neither exploit nor extract. That has always been the most powerful argument for public banks: that they can produce justice because as community-controlled entities, we can make them just.

Matt Stannard is policy director at Commonomics USA and was formerly on the Public Banking Institute’s board of directors, but the views expressed in this post are entirely personal.