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.

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. 

Cannabis and Public Banking: the Upcoming California Treasurer’s Meeting, and Me

by Matt Stannard

I will give a public presentation to California Treasurer John Chiang and his Cannabis Banking Working Group on August 10 in Los Angeles. The meeting will be held at the Sheraton Gateway Hotel on Century Blvd. It will start at 9:30 a.m. and is expected to go until 1:30 or 2:00 p.m. The meeting is open to the public and is expected to be webcast live. My colleague Marc Armstrong, president of Commonomics USA, will join me at the table for questions and answers following my presentation to the Working Group.

Given the scope of the question–whether the State of California should open a public bank–and the fact that the State Treasurer has called this meeting solely to discuss public banking, we could easily call this the “biggest” official meeting about public banking, ever. Its scope is unprecedented and the event itself is a “surprise,” originally not part of the series of Working Group meetings and added only after the Working Group heard several public comments on public banking at its previous meetings.

John Chiang’s staff informed us that other presenters for the August 10 meeting include Gwen Hallsmith of Global Community Solutions, Auburn University Professor James Barth, Colorado Bankers Association president Don Childers, and former Massachusetts Bank Commissioner David Cotney. We expect that some of these participants will be arguing against public banking, but the format of the hearing is not adversarial.

MRB banking has been on the radar of the public banking movement before, but many of our earlier assumptions were naïve concerning how cleanly a state-only cannabis economy could break free of federal banking oversight. After extensively researching that oversight, the team at Commonomics USA determined that, while not a magic bullet (there are no magic bullets on this question), a public bank would be a strong candidate for containment and management of legal risk, and serve as a conduit of states’ independent approaches to cannabis policy and the multibillion dollar windfalls of recreational legalization.

The heavy-handed rhetoric of the current United States Department of Justice and its Attorney General threatening pushback against California and other states is a significant departure from the imperfect but significant attempts by the previous administration to work with states. The Cole Memo, currently under review, and the FinCEN guidelines both provided some degree of predictability concerning the federal government’s Controlled Substance Act enforcement priorities. Licensing a public bank with robust monitoring and compliance resources, as the “first touch” for state MRB revenue, would be a responsible, good-faith gesture amidst current federal unpredictability.

We believe the State of California, or a charter city in California, should create a public bank that will provide accounts to marijuana-related businesses (MRBs) with top-level monitoring security, and legal compliance. Such a bank can also provide accessible services to California’s unbanked and underbanked residents, and provide credit for public projects and services to lower the cost of public financing and meet the structural and service needs of Californians, reducing the state’s reliance on both Wall Street and the federal government. California should immediately create and submit a business plan to the Federal Reserve of San Francisco in application for a Master Account Number.

Given the Federal Reserve Bank of Kansas City’s recent reluctance to provide an account number to a small, private credit union in Colorado that intended to serve MRBs (a case we at Commonomics USA have been following very closely), there will be legal challenges and some resistance to overcome to make this happen. Our position is to embrace that challenge and fight for a public bank, whether that means convincing the Federal Reserve, convincing the courts, or changing the laws.

As Marc said to me recently, “a central argument of ours is that, when it comes to the cannabis market, the people have spoken and it’s up to elected officials not to do what the DOJ is doing, but to make the market as transparent and accountable as possible, with individuals and legal organizations acting responsibly and above-board. Enough with the intrigue, innuendo, threats and dangers to public safety. Time for an open market that has readily enforceable standards and with deposit accounts for every licensed MRB.” And–if the people of California want it–a public bank to utilize MRB revenue for public goods.

We hope for a strong public presence in support of public banking at the August 10 hearing, both inside and outside of the venue and in the coming days will make information available on local organizing efforts.

Matt Stannard is Policy Director at Commonomics USA. 

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.