Public Banking 101

An Introduction to Public Banking

Public vs Private Banking

Two banking models have competed for dominance for thousands of years – public and private. In the public model, interest and profits belong to the community, and they are returned to the community. Credit is delivered to the economy in an organic way that sustains it and is sustainable.

Publicly-owned banks operate in the public interest by law. That means they must support the real, wealth-producing economy. Bank profits generated from the credit of the public are returned to the public.

What is a public bank? A public banking is a bank owned by the people through their representative governments and operated in the public interest. Public banks can exist at all levels, from local to state to national or even international. Any governmental body which can meet local banking requirements may, theoretically, create such a financial institution. This video, produced by In Context in 2011, gives a good, short overview of public banking. Watch and learn about the history of the Bank of North Dakota, the nation’s only state owned bank, and how it benefits its its home state, as well as what new public banks could do to fund infrastructure projects, generate income, and work cooperatively with commercial banks. [youtube] 

A Brief History: from the Quakers to North Dakota Public banking was first introduced in America by the Quakers in the original colony of Pennsylvania. Other colonial governments also established publicly-owned banks. The concept was later embraced by the State of North Dakota, which is currently the only state to own its own bank, although there are active campaigns for public state and city banks across the country. The BND was founded in 1919 to insure a dependable supply of affordable credit for its farmers, ranchers and businesses. Without affordable credit, average Americans who do not have substantial wealth cannot make the investments in their families and small businesses necessary to insure a prosperous future. The Bank of North Dakota makes low interest loans to students, existing small businesses and start-ups. It partners with private banks to provide a secondary market for mortgages and supports local governments by buying municipal bonds. As a public bank, the Bank of North Dakota pays its dividend to its only shareholder – the people of the state. In the past decade, despite its small population and modest volume of economic activity, the Bank of North Dakota has returned over $300 million to the state’s general fund, helping to ensure regular annual surpluses and eliminate the need for drastic tax increases or spending cuts for vital public services. Most other states currently deposit their tax revenues (the public’s money) in private Wall Street banks, which use these deposits for their own private gain. This money could be deposited in the state’s own bank and used to fund projects and programs that benefit the public over the long term – the very same projects/programs that are currently being cut from state budgets. The Bank of North Dakota is only one of many public banking models that have developed historically around the world. For most of the twentieth century in Australia, the publicly-owned Commonwealth Bank of Australia was not only the nation’s central bank but engaged in commercial banking, “keeping the other banks honest.” In Alberta, Canada, the publicly-owned Alberta Treasury Branches connect nearly every town in a shared credit system. Public and private banks operate effectively together in many countries, including Switzerland, Germany, India, China and Brazil. Clearly, states and municipalities have the potential to leverage their revenues to a much greater degree than is currently practiced. The Public Banking Institute has been set up to explore and educate regarding this potential. Visit their site to learn more. 

Public Banks are … • Viable solutions to the present economic crises in US states. • Counter-cyclical, meaning they are capable of reducing the negative impact of recessions, because they can make money available for local governments and businesses precisely when private banks decrease lending. • Potentially available to any-sized government or community able to meet the requirements for setting up a bank. • Owned by the people of a state or community. • Economically sustainable, because they operate transparently according to applicable banking regulations. • Able to offset pressures for tax increases with returned credit income to the community. • Ready sources of affordable credit for local governments, eliminating the need for large “rainy day” funds. • Required to promote the public interest, as defined in their charters. • Constitutional, as ruled by the U.S. Supreme Court 

and are not
… • Operated by politicians; rather, they are run by professional bankers. • Boondoggles for bank executives; rather, their employees are salaried public servants (paid by the state, with a transparent pay structure) who would likely not earn bonuses, commissions or fees for generating loans. • Speculative ventures that maximize profits in the short term, without regard to the long-term interests of the public. (adapted from information on the Public Banking Institute and Arizonans for a New Economy websites)

Here are links to articles, recommended books, videos and other resources on public banking.

Note that we often use Twitter to highlight news or news articles about public banking, Wall Street, and the need for democratizing our financial system. Please follow us at @hubpublicbank.

by Working Group and Advisory Group members
Banking in Nine Words, by Dave Lewit, Hub Public Banking Working Group

Benefits of a Public Bank for Cities and Municipalities, by Steve Snyder, Hub Public Banking Working Group

Community Bank Benefits of Partnering with a Public Bank: FAQs, by Steve Snyder, Hub Public Banking Working Group

Recommended books on public banking, community finance, and solidarity economics
(Please consider ordering these books through your local independent bookstore.)

Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free, by Ellen Hodgson Brown

The Public Bank Solution: From Austerity to Prosperity, by Ellen Hodgson Brown

Checking the Banks: The Nuts and Bolts of Banking for People Who Want to Fix It, by Tom Sgouros

Creating Wealth: Growing Local Economies With Local Currencies, by Gwendolyn Hallsmith and Bernard Lietaer

Occupying a New Maine Economy: Creating a State-Owned Bank, by Randall Parr

Owning Our Future: The Emerging Ownership Revolution, by Marjorie Kelly

Web Resources
The Public Banking Institute’s Learn about Public Banking page features links to articles, videos, podcasts, and PBI press releases.

The Alliance for Democracy’s thematic journal, Justice Rising, published an issue on public banking which can be read and downloaded here.

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