What is a public bank?

Pretty self-explanatory, actually! A public bank is a bank owned by the public. The bank takes the deposits of the state (and possibly cities and towns), keeps them safe, and loans to Massachusetts small businesses. The bank is governed by an independent governing board of state appointees, required to have banking expertise. This independence and expertise means that the public bank is free to make decisions in the best interest of the state’s economy rather than whoever is governor at a given moment.

Unlike a private bank, whose mandate is to maximize profit for shareholders, a public bank has the mandate to support the state economy. That mandate operates on both sides of a public bank’s ledger: its deposits are state funds, kept in intentionally safe structures, and its loans go to structurally sound but underserved borrowers who use those funds to strengthen their local economies with new businesses, jobs, and tax revenues.

The Massachusetts proposal owes a lot to the Bank of North Dakota, the United States’ only existing public bank. Here’s Don Morgan, its CEO, describing the model in a five-minute video. Some key points: the public bank returns a net profit to the state coffers, it has a rigorous and independent underwriting process, it loans in partnership with a rich network of private community banks, and it holds a balanced portfolio of traditional and mission-driven loans.

Massachusetts needs a strong local business sector, a flourishing farm community, a robust disaster response, and a thriving economy to face the challenges of the next few decades. The public bank will harness the power of modern finance to help our communities achieve their goals.