It’s time for a public bank

What is a public bank? Unlike private banks, which are owned by a handful of shareholders, public banks are owned and operated by cities, counties or states. Private banks focus on creating profit for their shareholders — the concentrated few individuals who own them. Conversely, public banks are accountable to the public and focus on investing in areas that benefit the common good.

By investing back into communities, public banks support those who have historically faced challenges from private banks. Marginalized communities have long been barred from accessing the financial services at private banks. People of color and low-income families have systematically faced lack of access to capital, higher interest rates for loans and mortgages, and are more likely to be impacted by overdraft fees and predatory loans — further cementing economic inequality throughout our communities.

Public banks would work toward the reduction of economic disparities by prioritizing investments in areas that support the public good, promote sustainability, and empower the community. Low interest loans for small businesses, innovative start-ups, student tuition, first-time homebuyers, affordable and mixed-income housing developments, public infrastructure improvements, renewable energy projects, and more can be provided throughout the state. With public banking, our economic system can work to promote the welfare of all Californians rather than a handful of wealthy shareholders, ultimately leading to better financial access for all.

This isn’t a new concept — it’s already proved to be a stable and beneficial banking model. North Dakota’s 104-year-old public bank was a key tool in the state’s resilience to the 2008 financial crisis and has played a key role in funding classrooms and financing a strong affordable housing system.

When banks fail, the Federal Deposit Insurance Corporation takes over to sell the failed bank’s assets to other banks. What many may not realize is that in this process the FDIC creates a Deposit Insurance National Bank — or in other words, a temporary public bank to manage these assets. The FDIC has been doing this for decades. In the FDIC’s takeover of SVB, they created the DINB of Santa Clara to auction SVB’s assets.

So this begs the question: If the FDIC creates temporary public banks, why not make them permanent? California has been laying the groundwork that may allow us to do just that. In 2021, Assembly Bill 1177 was signed into law by Gov. Gavin Newsom to create a commission to study a statewide public banking option. And in 2019, Assembly Bill 857 amended the California Financial Code to authorize the formation of public banks; and created a regulatory framework for the operation of public banks. San Francisco is close to establishing a public bank, and similar interest is occurring in the East Bay and Los Angeles. The assets of a bank failure such as First Republic Bank, Signature Bank and Silicon Valley Bank — could be acquired from the FDIC by a public bank to better serve the people of California. 

California can be the second in the nation to establish a state-owned public bank — and the first to establish myriad local public banks in counties up and down the state. Public banks can be another tool to fund the innovative work and community that California is known for, and create a more resilient system to weather the storms of economic uncertainty.

James Coleman is a member of the South San Francisco City Council. Katie Causey is an organizing lead at Peninsula For Everyone.