American Cities Need Public Banks That Make Local Investments Where Private Banks Won’t

A local development bank, part of a German government-owned banking system.

Community activists in New York City are pushing for the establishment of community-oriented banks that can be counted on the reinvest a community’s financial resources into local endeavours, such a affordable housing.

The idea of a ‘community bank’ is a fine one, but the name in America is already taken. Community banks are generally agreed to be smaller privately-owned banks situated within and catering to a community. And co-operatives of small investors in credit unions qualify as community-owned banks. But that kind of small scale investment is not quite what the activists have in mind, either.

In a larger community like a city, through to regions and states and on up to the federal level, as the population and resources expand, its financial holdings in fees, fines, taxes, grants, proceeds from property seizures, etc. can become enormous. These are not the collective holdings of small investors!

Now privately-owned banks are, and always have been, more than delighted to be a repository and investment vehicle for any amount of public funds. Being a for-profit institution, privately-owned banks will do their darnedest to invest that public money and make it grow, even as they reserve the right to do it the way the bank wants, not necessarily the way the public wants.

Privately-owned banks are first and foremost responsible to their shareholders, not the public. Investing public funds into local community projects, such as affordable housing, may not appear to the bank to be the wisest or most profitable investment.

Who can blame a private-owned bank if it sees a greater profit in arms manufacture than in helping to bring down local housing costs? (Actually, some communities do blame privately-owned banks, rating them on their community activism and favouring those which plow at least some money back into community projects.)

Still, a community might well think ‘why not step away from the private system altogether, and set up a public bank?’

Good idea? Well, America has little experience with public banks. Though several state and city governments are eyeing public banks with interest, there is in fact only one existing in the U.S. at the current time. But lack of experience in public banking is no roadblock for that band of New York City activists. Read more in NextCity: Movement to Get Public Money Out of Wall Street Comes to Wall Street

As for the exploring the wider potential of public banks, Americans are pretty much forced to explore overseas. Here’s an article extolling public bank ownership in Germany, by way of putting the boots to the UK banking system, in The Guardian: British Banks Can’t Be Trusted – Let’s Nationalise Them

But the same German banking system does not get quite the same enthusiastic thumbs-up in this Forbes article: The Wondrous German Public Sector Banks Aren’t All They Are Cracked Up To Be

How will the privately-owned banking industry react? The sole public bank in the U.S. coexists in North Dakota with the private banking industry. As for other explorations of public banking in the U.S., read about one in California that is aiming to capitalize the bank on the proceeds of marijuana sales, leading to the entertaining headline in High Country News: Public Banking Goes To Pot. There’s more history on America’s sole existing public bank in this article, too.



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