What’s a public bank? States or municipalities use reserves for a public mission and the needs of the public it represents, such as local investments and local businesses

https://youtu.be/xiYaEIwbwbg VIDEO: An Introduction to Public Banking, by In Context Report (7:23)

A Public Bank is a chartered depository bank in which public funds are deposited. It is owned by a government unit — a state, county, city, or tribe — and mandated to serve a public mission that reflects the values and needs of the public that it represents. In existing and proposed US Public Bank models, skilled bankers, not the government, make bank decisions and provide accountability and transparency to the public for how public funds are used.

A state bank could lend to private banks, loan directly, or enter partnerships.  It could fund infrastructure (projects that are too long-term for private sector interest) and small business loans.  They also can produce income (interest) for the govenmental entity.

Public banks are popular globally, operating on a variety of models; and new models continue to be proposed. The US, however, currently has only one public depository bank — the Bank of North Dakota (BND). All state revenues are deposited in the BND by law.

Public banking is banking operated in the public interest, through institutions owned by the people through their representative governments. 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.

Public banking is distinguished from private banking in that its mandate begins with the public’s interest. Privately-owned banks, by contrast, have shareholders who generally seek short-term profits as their highest priority. Public banks are able to reduce taxes within their jurisdictions, because their profits are returned to the general fund of the public entity. The costs of public projects undertaken by governmental bodies are also greatly reduced, because public banks do not need to charge interest to themselves. Eliminating interest has been shown to reduce the cost of such projects, on average, by 50%.

When the public interest demands, the mission of public banks is to respond immediately, to assure the long-term prosperity of the community.

A brief history of public banking in the US

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, the only state to currently own its own bank.

As of the spring of 2010, North Dakota was also the only state sporting a major budget surplus; it had the lowest unemployment and default rates in the country; and it had the most community banks per capita, suggesting that the presence of a state-owned bank has not only not hurt but has helped the local banks.

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.

The public banking model used by the State of North Dakota is simple – the State of North Dakota is doing business as the Bank of North Dakota (BND). That means all the state’s assets are used to capitalize the BND. By law, all the state’s revenues are also deposited in the Bank. Among other advantages, this gives the BND the ability to participate in loans originated and led by private banks, which then have more flexibility to manage and expand their loan portfolios.

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 states, with the exception of North Dakota, 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.


Public banking was the Founding Fathers’ ideal.  Many of them and some of the most famous US Presidents of the 19th century struggled against private central reserve banks for over one hundred years.  See the New Economy Academy for more information.  At the US state level, the Bank of North Dakota provides an excellent example of the power of public banking, as it has since 1919.

Since 2010, in an attempt to regain control over regional economies in the face of a Wall Street crisis in which the banks that caused the crisis got bailed out but cities and states suffered terribly but did not get bailed out, almost half of the US states have had legislation introduced to create public banks.


A public bank is owned by the city, county, or state that founded it. That means that the money it makes by making loans comes back to the taxpayers, rather than to private banks and investors. A public bank has many of the same privileges as the private banks, for example it can use the fractional reserve system to multiply the value of its deposits through loans to students, homeowners, municipalities, and enterprises.


  • Taxpayers, who will benefit from both the profits the bank makes and the services the bank offers.
  • Students, who can access low interest education loans from the bank. Since Vermont would control it, we could also offer flexible repayment terms for people who go into public service and education, so our young people are not saddled with unreasonable debt.
  • Homeowners, who could get reasonable mortgages and home loans from the bank.
  • Entrepreneurs will have access to credit lines, loans, and other forms of finance to help their businesses succeed.
  • Municipalities:  the bank can offer competitive interest on public deposits and lower cost financing for public works.


In the case of nearly every state and town government, it is standard practice to send millions upon millions of dollars a year to banks and investors to pay the interest on bonds that have been issued for state infrastructure. If you add up the money the towns collectively send to banks and investors for the same purposes, it is a lot of money. In the case of California, its long awaited new Bay Bridge span was recently completed at a cost of $6.4 billion – over 400% over its initial projection.  What most Californians don’t realize is that the total cost of the bridge will eclipse $13 billion when interest payments are considered over their life.  50% savings is not an aberration – it is pretty much a standard calculation for what municipalities can save by issuing their own loans for critical infrastructure from their own bank.

Meanwhile it is also standard practice to cut programs that benefit low income citizens and students to close “budget gaps” that appear on a regular basis.  There are also many unmet needs for roads, bridges, public transit, energy, housing, education, water, and telecommunications. If the interest payments on infrastructure, housing, economic development, and student loans were going to the public sector instead, we would have lower taxes and more funds available for needed improvements.


The Bank of North Dakota shows that a public bank can and must be run free of influence from the legislature and other high offices, in order to effectively do its job.


A public bank does not compete with local banks. It does not accept deposits from individuals, organizations, and businesses – only from the state and municipal governments. For local and regional banks, a public bank can also serve as a support system, allowing them to make loans and take deposits that normally would be out of their reach because of their small size. As an example, North Dakota, home of the publicly-owned Bank of North Dakota, boasts the most banks per capita of any state in the nation.  This is just one of the benefits of public banking – support of a diverse and robust private banking sector that truly serves the public.


Banks that don’t like the idea of a public bank typically are the large national and international banks that currently accept the deposits of state and municipal governments and invest them in out-of-state projects like – for example – the XL Pipeline and the tar sands up in Canada.  Public banks offer municipalities and community banks enormous benefits and tend to have the effect of creating competition for the big banks – and they do not like competition.


Among other things, publicly owned banks offer counter-cyclical relief by (1) issuing badly needed credit at low, or no, cost to the state, thus providing a means of revitalizing infrastructure and other services that are now endangered (according to studies, interest paid to private banks represents 30 to 50% of the cost of most public projects); (2) supporting local and regional banks by participating with capital and expertise in loan programs that address local and regional needs; (3) providing support for residential and agricultural financing that acts as a bridge during times of economic contraction, as the Bank of North Dakota did during the Great Depression; and (4) saving the state hundreds of millions of dollars on fees associated with simply keeping general tax revenues and other substantial funds in the big banks.


Credit unions make regions economically strong, because the benefits and profits from the credit unions go to their members, rather than out-of-state investors. However, a public bank’s profits go to the public – all of the residents and taxpayers of a city or state, not just the members of a single credit union.

More importantly, credit unions can only lend out what people deposit into their credit union. Credit unions cannot create money-credit through fractional reserve banking the way real banks (including public banks) can do.


No. Nearly all city, county, and state governments have the capital needed for a public bank on their balance sheets of existing lending agencies as unrestricted assets, or in a variety of other asset pools – including funds on deposit with big private banks. These funds are more than adequate to serve as the capital for a bank. It requires a decision by the legislature, but there should be no need to raise additional money from taxes to provide the capital for the bank.


The governing legislators or lawmakers—whether at the state or municipal level—would make general policy decisions about public banks (and would likely have an advisory commission to consult), but day-to-day decisions would be made by the banks themselves—governed by their charters and subject to transparency and administrative review. The Bank of North Dakota shows that a public bank can and must be run free of influence from the legislature and other high offices, in order to effectively do its job.

The Bank of North Dakota is the State of North Dakota doing business as the Bank of North Dakota. As Banking on Colorado points out, “A three-member State Industrial Commission oversees Bank of North Dakota, composed of the Governor, the Attorney General, and the Commissioner of Agriculture. The Bank has a seven-member Advisory Board appointed by the governor. The members must be knowledgeable in banking and finance. The Advisory Board reviews the Bank’s operations and makes recommendations to the Industrial Commission relating to the Bank’s management, services, policies and procedures.”

There is every reason to believe public banks will be fiscally conservative, balancing their chartered mandate to lend in the public interest with moderation and careful considerations of risk–more so than big private banks who gamble with municipal money. Standard & Poor has consistently rated BND in the “A” range, indicating the highest levels of confidence in BND’s creditworthiness and practices. According to North Dakota Attorney General Wayne Stenehjem, “The [2013] S&P review of the bank confirmed that it is well-managed and supports the economic needs of North Dakota . . . The report recognized BND for its conservative management strategy.” 

Who should get to use our money? Ellen Brown: Blackstone, BlackRock or a Public Bank for California’s money?

Should California give its pension money to an absentee slumlord? Or to the world’s largest, “extremely dangerous” shadow bank that charges 14 percent management fees, lost $500 million of CalPERS’ money in 2009, and is up to their neck in oil and private water interests? No? Ellen Brown explains in her latest article in TruthDig the obvious and urgent alternative: a California Public Bank:

California’s pools of idle funds cannot be spent on infrastructure, but they could be deposited or invested in a publicly owned bank, where they could form the deposit base for infrastructure loans. California is now the fifth-largest economy in the world, trailing only Germany, Japan, China and the United States. Germany, China and other Asian countries are addressing their infrastructure challenges through public infrastructure banks that leverage pools of funds into loans for needed construction. …

Germany has an infrastructure bank called KfW which is larger than the World Bank, with assets of $600 billion in 2016. Along with the public Sparkassen banks, KfW has funded Germany’s green energy revolution. Renewables generated 41 percent of the country’s electricity in 2017, up from 6 percent in 2000, earning the country the title ‘the world’s first major green energy economy.’ Public banks provided over 72 percent of the financing for this transition.

Ellen Brown continues:

Note that these deposits would not be spent. Pension funds, rainy day funds and other pools of government money can provide the liquidity for loans while remaining on deposit in the bank, available for withdrawal on demand by the government depositor. Even mainstream economists now acknowledge that banks do not lend their deposits but actually create deposits when they make loans.


  • Drastically cut borrowing costs for governments (and the rest of us)
  • Eliminate big bank fees and save taxpayers lots of money
  • Cut financing costs in HALF for public infrastructure projects
  • Support community-based banks
  • Create jobs and boost Main Street
  • For related Legal Opinions and Memoranda, click here.
  • For related Legislative examples, including Resolutions and Motions, click here.
  • For the Bank of North Dakota statute / charter, click here.

City Efforts

Los Angeles

Report from the Chief Legislative Analyst on Public Bank Framework and Existing Housing and Economic Development Funding Programs – Feb 2018

Report from the City Administrative Officer on City Infrastructure Financing – Feb 2018

Report from the Chief Legislative Analyst on Legislative and Regulatory Reforms Related to Municipal Banking – Dec 2017

San Francisco

Policy Analysis Report for San Francisco Board of Supervisors: Community Supportive Banking Options – Nov 2017


New Jersey

Exploring a Public Bank for New Jersey: Economic Impact and Implementation Issues – Apr 2018

New Mexico (via Santa Fe)

Public Bank Task Force Final Report – Apr 2018

Public Banking Feasibility Study Final Report – Jan 2016

Washington State

Washington State Bank Analysis Feasibility Study – Dec 2010

All States 

Public Banking in America: State Banking Legislative Guide – PBI, Center for State Innovation – Spring 2011

VIDEO: Positive Money frames the problem we face

The UK group Positive Money explains in this video how our debt-based, private bank system has created the money supply problem we face. While PBI advocates for a different solution, we agree on the condition: The money system we are enduring is broken.

“More than 97 percent of all the money in our economy is created by banks when they make loans. Most of this money goes into house price bubbles and gambling on financial markets. This has led to ever-widening inequality, the highest personal debt in history, and house prices that very few people can afford, before even mentioning the financial crisis.”

The Public Banking movement currently being powered in part by communities who’ve insisted their governments stop banking with the financial institutions behind fossil fuel-driven barbarism such as the attacks on peaceful water protectors at Standing Rock. After every divestment victory, however, a critical problem presents itself: finding an acceptable alternative.  Seattle, for example, voted unanimously to divest from Wells Fargo in February 2017, but after realizing virtually all big banks are funders of DAPL and, curiously, no other bank wanted to participate and bid for the city’s services, Seattle last week was forced to sign on for another three years with Wells.  Matt Remle, who lives in Seattle and is a member of the Standing Rock Sioux tribe, explains how the encampment effort led to his forming the group Mazaska Talks and to the idea of a Public Bank: 

We know that as a city or as a tribe, when we are banking with a Wells Fargo or Chase or Bank of America, that money isn’t being reinvested back into our communities. We are very clear when we are pushing our banking ordinance that it’s not a victory to jump from one Wall Street bank to another. Our ultimate goal for Seattle is to take our money completely out of there and have control over our own finances.

Phoenix Goodman describes how the Divest LA movement realized it must form Public Bank LA.

For a city to create its own public bank owned by the People and accountable directly to them, is to create an entirely new financial system on the People’s terms, which is the logical end-game of divestment. …

By bringing banking under public control, so that the bankers that have the responsibility over our financial sector are accountable public servants rather than private casino gamblers, we can finally make progress towards a system that is legitimately, rather than superficially democratic.”

This was indeed predicted by industry observers. The Crapo bill, oddly, did not look to the only state in the country with thriving community banks — North Dakota — to build upon their successful model: their Public Bank, David Dayen explains in his recent sobering article:

Indeed, the past 30 years have witnessed a dramatic reduction in chartered banks, from 14,500 to fewer than 5,600. ‘If this pattern continues, we’ll only have Wall Street banks left,’ said Sen. Jon Tester, D-Mont., to Politico. ‘And Wall Street banks won’t serve rural America, they won’t serve Montana. … So, what will rural America do?’ …

What the Public Banking movement must do to win

Matt Stannard’s latest article in his series on Public Banking reflects on what it will take to put the movement across the finish line and have new Public Banks up and running. He concludes the path to success will require coordinating broad public demand from a wide array of public interest groups.  In Santa Fe, roughly half of the citizen task force was affiliated with private financial business, and only one officially represented the Public Banking movement.  Stannard wonders “what would have happened if even only a few thousand people had demanded a Public Bank of Santa Fe, instead of a few hundred?” The Santa Fe Task Force validated and acknowledged all the many benefits of Public Banking — including keeping public money invested locally, lowering costs for borrowing and lending, and using internal money to finance infrastructure — their final report recommends the task of setting one up would be tackled more appropriately at the state level, rather than city level.  The Santa Fe cause gained many supporters who are now well acquainted with the benefits of a Public Bank, including Glenn Schiffbauer, executive director of the Santa Fe Green Chamber of Commerce, who said in a related Albuquerque Journal article: “I think it’s a great start and since we do a lot of lobbying (at the state Legislature) we are willing to help in any way we can.”

In Los Angeles, Stannard talks to Trinity Tran and Phoenix Goodman of Public Bank LA.  Trinity Tran said:

There needs to be consistent visibility and positive dialogue from activists and constituents. As we saw through the Divest LA campaign, a critical part of successful movement building is to work an inside-outside game, leveraging visibility from a wide network of grassroots advocates to deliver the needed public pressure to guide legislators in a laser-pointed direction.

Phoenix Goodman:

The problem with public banking movements up to this point is that they have been mostly technical-minded, smart, well-meaning people playing at the higher level trying to enact legislation, but lacking in the general people-power movement that would provide the fuel that would force the agenda.

Stannard continues:

Sure, Goodman said, we need ‘high-level networking’ with officials, but equally important is a mass advocacy campaign, ‘articles, infographics, public events, town halls,’ and things like the recent ‘street event in San Francisco’ thrown by activists. ‘The point is to make it political suicide not to endorse public banking.’

Zac Townsend writes emphatically in the San Francisco Examiner that

San Franciscans deserve a public bank, one that invests The City’s money into local projects that reflect our values. San Francisco has nearly $10 billion we store on the balance sheet of big banks that could go to capitalizing a public bank.

Townsend continues:

A public bank would serve San Francisco in many ways; first and foremost as a place to ethically store our public dollars. With a public bank, we can ensure that our deposits do not go toward fossil fuel emissions, gun manufacturing or purchases or support of unfair labor practices. We also provide that any profits made off our deposits don’t go to the bottom lines of big banks but rather get reinvesting into our community.

More pointedly, a public bank would save The City money we pay directly to big banks. We currently pay upward of $2 million each year in banking fees just related to The City’s bank accounts. With a public bank, these taxpayer dollars wouldn’t contribute to Wall Street profits, and would instead be invested in San Francisco. Similarly, the bank could also issue city bonds so we don’t have to pay investment bank fees, while the interest earned from public bank loans could be continually reinvested into projects that benefit The City.”

The Municipal Bank Feasibility Task Force has met twice since it formed and will submit a report outlining its recommendations for San Francisco following a sixth meeting in July. (Courtesy photo)

From Portland to Los Angeles, Public Bank advocates bring the message of the benefits of Public Banks to the people and to their city representatives.

Public events for Public Banking take off in Los Angeles and Portland

Portland Public Banking Alliance hosted PBI Chair Ellen Brown for two public events in Portland. And in Los Angeles, a great show of people power took place on Monday when a wide intersection of Public Banking activists and advocates visited LA City Council to present the benefits of a city-owned bank.

VIDEO: The impact of a Public Bank on NJ with Stockton professor, Dr. Deborah Figart Former PBI Chair Walt McRee interviews Stockton University Distinguished Professor of Economics, Dr. Deborah Figart to discuss her recent study on the impact of a Public Bank for New Jersey. Dr. Figart also penned a related opinion piece this week for the NJ Star-Ledger. Dr. Figart’s basic message: a Public Bank gets NEW money into the economy; it doesn’t just shift money from one pocket to another. She brings up that NJ has a great deal of money in various accounts in Wells Fargo, being used for loans that are not going to NJ.  She says for every $1 spent on infrastructure, $2 in Gross State Product is created — it’s a standard economic formula.

Dr. Figart:

A Public Bank would contribute enormously to funding economic development needs throughout America and in the state of New Jersey. … It’s very difficult to borrow money for infrastructure and if states and municipalities could find a way to raise funds through a public bank and to borrow at lower interest rates than typically what Wall Street lends money for, I think that we could do a lot to generate state economic growth and municipal economic growth and redevelopment in the U.S.

International News: Irish Public Banks on the horizon!

Ireland is well underway in its examination of Public Banking. The departments of Finance and Rural and Community Development have been working with Public Banking advocates Irish Rural Link and the international development wing of the Sparkassen German Public Banking group, Savings Bank Foundation for International Cooperation (SBFIC). The report is likely to be published in the coming weeks.

In Germany, Sparkassen are public bodies under municipal trusteeship. They make up the largest banking group and are the market leader in Germany. In an article in The Journal, Harald Felzen, European project manager for SPFIC explained: The salary agreements with Sparkassen staff are basically identically equal to the civil servant agreements. Bonuses for staff are not common practice. [Read the full article]

The journey to eventual success for American Samoa’s new Public Bank was a long and painstaking one to which any Public Banking advocate can relate. Three and a half years of work brought about a triumph on Oct 3, 2016, when the Territorial Bank of American Samoa opened its doors for business. But the Federal Reserve put the bank in limbo for almost 2 years before they provided the new Public Bank a routing number allowing them access to the U.S payment system — a step that usually takes a couple of weeks according to a new article in the Washington Post.

American Samoa Governor Lolo Matalasi Moliga said in 2016:

Today is a day our people will remember for a very, very long time, not because we dared to challenge the status quo or that we endeavored to find a banking solution for our people, our businesses and our economy, but more so because the leaders of our Territory have come together to find a common solution and an answer to the crippling challenges affecting the quality of life of the people of American Samoa.

Now that TBAS is off and running, Washington Post’s Andrew Van Dam says the next one won’t be far behind.  The post-recession anti-bank backlash continues, and Sen. Bernie Sanders (I-Vt.), New Jersey Gov. Phil Murphy (D) and others have pushed for public banks to help revive marginal rural and urban areas.

A recent extended article in Nation of Change by Rudy Avizius explains how eliminating the middle-man of Wall Street would allow money to remain in our communities. The article includes video of a discussion last year with PBI Chair Ellen Brown, former PBI Chair Walt McRee, and economist Michael Hudson.

Rudy Avizius:

With the current banking system, we have witnessed the largest concentration of wealth in human history, while the vast majority of people have experienced stagnant wages, declining wealth, and recurring recessions. …

Wouldn’t it be wiser for communities to be able to obtain local funding at reduced interest rates where any interest payments would remain in the community and get recycled? Any good businessman would tell you that it is sound business to eliminate any middleman in a business transaction. Wall Street is nothing more than a middleman between funding and community needs, and if the Wall Street middleman was eliminated, more money would remain in our communities.”

Avizius continues:

The Bank of ND does not compete with community banks, but rather partners with them. There is a correlation between this partnering and the fact that North Dakota has the largest number of community banks per capita of all states in the nation. Additionally, the Bank of ND has only one office and no branches, no tellers, and no ATMs that compete with community banks.

This partnering with local community banks means that the Bank of ND does not lend directly to small local businesses, but relies instead on the local community banks to originate those loans. The public state bank can provide funding beyond the deposit base of a small community bank allowing the community bank to finance projects it could not have financed without the partnership. If a local bank had a $5 million limit, and a business wanted $10 million for a new showroom, the bank would have to say no to the loan, forcing the business to go to a Wells Fargo, Citi, JP Morgan Chase or other large Wall Street bank. This results in the loss of business for the community bank.  With the public state bank, the community bank could partner on the loan, raising its loan ceiling, retain the money in the community, and provide the services needed.

One very important issue that needs to be raised is that of the safety of the loans being made. It is important to be sure that bank loans are made to people and entities that are truly creditworthy. In North Dakota there is a double check on this process. Any loan that a community bank requests a partnership with would require approval by both the community bank and the state bank officers, since both would be providing the funds. This results in a lower default rate as two sets of eyes are examining and approving the loan.

Rudy Avizius / Nation of Change / – March 28, 2018 (whole article)

As we get older, and hopefully wiser, we generally start to become more discerning on how we view the world and the problems we face. Many of us who seek to make the world a better place try to look at the problems, analyze them, and do what we can to correct them. However, because there are so many different problems facing us, this approach often overwhelms us and can instill a sense of hopelessness in our ability to create positive change.

Looking more deeply into this situation, we discover that many of these difficulties are SYMPTOMS of much deeper problems, and that attempts to address these SYMPTOMS are not an effective or efficient way to bring about the changes we desire. One can compare this to having abdominal pains and visiting a doctor who offers you painkillers without investigating the underlying cause of the pains being experienced. If the pain is the result of a cancer or an ulcer, then the pain is only a SYMPTOM, not a ROOT CAUSE. Treating the SYMPTOM, in this case, is not an effective or efficient way to address the problem. It may bring about temporary relief but ignores the ROOT CAUSE.

A similar situation exists when we look at the wide range of issues we face as a society. Some of the issues include homelessness, lack of medical care, unemployment, high debt loads, widening wealth gap, declining schools, infrastructure neglect, fraying safety net, increasing government fees and tolls, etc. Trying to address each one of these issues individually becomes an overwhelming task. These issues are not ROOT CAUSES, but SYMPTOMS.

If we take time to ponder and analyze each of these issues looking for a common thread, one can determine that many are all the result of money, more specifically the lack of money. This process starts getting us closer to the ROOT CAUSES.

So how is it that as a society we can work so hard and still experience this lack of money?

Consider this…. If you have a given amount of money in your possession or control, all of that money is available to you to spend. Once you give some of that money to someone else, it is no longer available to you and is now available to others. While this concept may seem to be quite elementary, this is the basis of where much of the problem lies. If one applies the same principle to a larger group such as a family, a community, a county, state and even nation, the result is still the same. Once money leaves the group, it is no longer available to that group. Understanding this brings us another step closer to the ROOT CAUSES.

Most homeowners can relate to this. Let’s suppose that you have taken out a mortgage for $100,000. By the time you have completed paying off your mortgage, it will probably have cost you close to $300,000. The cost of the interest payments exceeds the original cost of the home. These interest payments are money that you and your family no longer have to spend on your needs.

The same principle applies when a school district, municipality, county or other entity wishes to do a repair, a capital improvement or infrastructure project. The costs of these projects can easily double or even triple due to the interest charges. It almost seems insane, but we pay more to the financiers of these projects than to those who provided the materials and labor for the project. This does not even include the fees imposed by the bank on the borrowers. Now we are approaching the ROOT CAUSES.

In California, the long-awaited new Bay Bridge span was recently completed at a cost of $6.4 billion, which was 4 times over the initial projected costs. What most Californians don’t realize is that the total cost of the bridge will eclipse $13 billion when interest payments are considered over the life of the loans or bonds. So when we talk of projects costs doubling or tripling, it is not hyperbole.

So exactly where does all this interest and fee money go when it leaves the community?

It flows to the big Wall Street banks, enriching them, while impoverishing the community. This is the “Wall Street Tax” that effectively doubles or triples the cost of every project across every community in the nation. It is YOU, the taxpayer who pays this tax. Once the money leaves the community, it can no longer circulate locally and is no longer available to the community, exactly as described in an earlier paragraph. This is a ROOT CAUSE of why so many communities are struggling. To add insult to injury, these big Wall Street financiers are not even using their own money, they use other people’s money so they can skim the interest payments to line their own pockets. We have all seen how Wall Street has prospered since the 2008 crisis, while Main Street has been left to languish.

So why do school districts, municipalities, counties and states (we’ll just refer to them as “communities” from this point on) use these big Wall Street financiers to fund their projects? It is because the costs of these projects usually exceed the ability of small local community banks to finance them. Additionally, because of capital requirements, the deposits of these communities cannot be handled by the smaller local banks leaving only the big banks capable of handling such large deposits and transactions.

This means that even the deposits of these communities which can include tax revenues, payrolls, and pension funds, are deposited with the large banks and therefore also shipped out of the community. These funds are then “invested” by Wall Street anywhere in the world where they can obtain the highest return. These funds are not being used to invest in local needs (more often are driving up costs/rents in real estate, stock and more). This is another ROOT CAUSE for why Main Street has been struggling, while Wall Street has been thriving.  With the current banking system, we have witnessed the largest concentration of wealth in human history, while the vast majority of people have experienced stagnant wages, declining wealth, and recurring recessions.

Maybe it is time to engage in some “out of the box” creative thinking? Wouldn’t it be wiser for communities to be able to obtain local funding at reduced interest rates where any interest payments would remain in the community and get recycled? Any good businessman would tell you that it is sound business to eliminate any middleman in a business transaction. Wall Street is nothing more than a middleman between funding and community needs, and if the Wall Street middleman was eliminated, more money would remain in our communities. How could this be done?

There is another way to finance public projects and it is already happening across the world and in the state of North Dakota. North Dakota has its own public bank, the Bank of North Dakota. This bank has been in existence for a century and provides communities and businesses with low-cost loans. Some examples of this: A new business in North Dakota can get a 1% loan for 5 years, student loans are available at below market rates with no bank fees, no town or county in ND has or needs a “rainy day” fund, they instead have the Bank of ND where they can obtain low-interest loans should an emergency arise.

The Bank of ND does not compete with community banks, but rather partners with them. There is a correlation between this partnering and the fact that North Dakota has the largest number of community banks per capita of all states in the nation. Additionally, the Bank of ND has only one office and no branches, no tellers, and no ATMs that compete with community banks.

Partnering with local community banks means that the Bank of ND does not lend directly to small local businesses but relies instead on the local community banks to originate those loans. The public state bank can provide funding beyond the deposit base of a small community bank allowing the community bank to finance projects it could not have financed without the partnership. If a local bank had a $5 million limit, and a business wanted $10 million for a new showroom, the bank would have to say no to the loan, forcing the business to go to a Wells Fargo, Citi, JP Morgan Chase or other large Wall Street bank. This results in the loss of business for the community bank. With the public state bank, the community bank could partner on the loan, raising its loan ceiling, retain the money in the community, and provide the services needed.

One very important issue that needs to be raised is that of the safety of the loans being made. It is important to be sure that bank loans are made to people and entities that are truly creditworthy. In North Dakota there is a double check on this process. Any loan that a community bank requests a partnership with would require approval by both the community bank and the state bank officers, since both would be providing the funds. This results in a lower default rate as two sets of eyes are examining and approving the loan.

There are those who may say that a state public bank could be at risk of failure and may need to be bailed out by the taxpayers. This was an issue that created much anger during the 2008 crisis. However, the Bank of ND was properly managed and did not need a bailout and in fact returned a profit of millions that year and every year since then to the state treasury. Politicians on BOTH sides of the aisle in the North Dakota Legislature love and support their state bank! How common is that?

The proper management of the Bank of ND can be attributed to the fact that the officers of the bank receive appropriate salaries (far less than their Wall Street counterparts) and have no bonuses and therefore no incentives to take on excessive risk. The private Wall Street bankers are pressured by their shareholders to return high profits, which often leads to excessive risk-taking rather focusing on the economic growth of the state and nation. Some of these investments could possibly be for things the community would not support or would even work against the best interests of their community. The public bank is required by its owners, which would be the people, to invest wisely to promote the economic vitality of the community.

The prosperity created by keeping deposits locally and recycling the fee and interest money locally, would create new jobs, new businesses, fund “wish list” projects, and as a result would raise tax revenue. As more businesses thrive, the tax base and ratables would became larger, which could possibly contribute to tax cuts.

A public bank is not limited to only states. Municipalities and counties could also form their own. There are public banks being considered in New Jersey, Philadelphia, Santa Fe, Vermont, California, Seattle, Los Angeles, Oakland, San Francisco and other places. These public banks have the ability to transform how communities obtain funding. It will keep deposit and interest money circulating locally and out of the hands of Wall Street, thus enabling our local communities to thrive. See the Public Banking Institute.

BY KATE ARONOFF, In These Times, Chase Says It’s Fighting Climate Change. So Why Is It Financing the Fossil Fuel Industry?

Here’s why climate justice campaigners protested the big bank’s shareholder meeting last week.

JPMorgan Chase (“Chase”) talks a big game on climate change. The Wall Street bank has committed to becoming entirely reliant on renewable energy by 2020 and facilitating $200 billion in clean financing—of low-carbon fuel sources—by 2025. “Business must play a leadership role in creating solutions that protect the environment and grow the economy,” CEO Jamie Dimon said in a statement announcing the pledge last summer.  As protesters at the company’s Texas shareholder meeting last week pointed out, Chase is leading on an entirely different front: financing fossil fuel infrastructure.

“Chase tripled their funding of tar sands over the last few years, and have dramatically ramped up their investment in fossil fuels,” says Tara Houska, a member of the Couchiching First Nation, an attorney and national campaigns director for Honor the Earth. Chase has also helped Enbridge finance its proposed Line 3 pipeline, which would carry tar sands oil through Ojibwe land in the upper Midwest. “The heart of my people’s culture would be obliterated if and when Enbridge’s Line 3 tar sands pipeline breaks in Minnesota’s vast watersheds and rich wild rice beds,” added Houska, who was in Texas for the shareholders’ meeting this week. “Chase can play a major role in preventing this from happening by ending its credit relationships with Enbridge and all destructive fossil fuel actors.”

According to Houska, demonstrators whose organizations had purchased shares were largely pushed into an overflow room at the annual shareholder meeting in Plano, giving those who showed up little space to make their case heard. One measure proposed in the main room would have increased transparency around investments in genocide. It was voted down.

The gulf between Chase’s public commitment to social responsibility and its actual business model isn’t unique. In recent years, many banks have talked up their investments in green bonds—money set aside for environmentally-minded projects—and commitment to environmental, social and governance (ESG) factors in making investment decisions, as opposed to simply short-term profits. The elites who gathered in Davos for the World Economic Forum in January ranked climate change among the world’s most pressing issues. Just last month, Chase and investment giant Blackrock teamed up to offer a new suite of global fixed income indices that incorporate ESG concerns.

Yet despite their stated focus on green bonds and ESG, major banks last year actually upped their financing of coal, oil and natural gas infrastructure projects by 11 percent to $115 billion. Financing of tar sands projects alone swelled by 111 percent through 2017. Chase is helping drive this trend: According to a study released this spring by the Rainforest Action Network, it’s now the third-largest financier of fossil fuel projects, and the largest among private bank funder of fossil fuel projects overall.In the last three years, the bank has poured $26.1 billion into oil, coal and gas projects, trailing behind the China Construction Bank and Royal Bank of Canada. Despite passing a policy in 2016 to stop financing new coal mines or coal-fired power plants in high-income OECD countries, the bank’s financing of coal projects was 21-times greater than it was in previous years. Chase’s three-year contribution to fossil fuels is nearly as much as the total valuation of green bonds issued by the world’s 200 largest banks in 2017—just $27 billion, representing just 1 percent of those banks’ nominal amount of total bond issuance over the same year. As an S&P Global study finds, only one fifth of those 200 banks have ever issued a green bond.

The demonstration at the shareholders’ meeting came just a week after a wave of protests around the country, calling attention to Chase’s role in financing Kinder Morgan’s Trans Mountain pipeline, recently stymied by British Columbia’s provincial government after years of pressure from First Nations and environmental groups. One action in Seattle that shut down a Chase bank branch and saw 14 people arrested.

Divestment work has been happening globally, as well. As part of the Indigenous Women’s Divestment Delegation, Houska has met with bank executives in the United States and Europe in addition to planning protests like the one this week. “They’ll talk about one-off projects that they’re helping to support, little tokens of community investment,” she said of those meetings. “That does not in anyway counteract or overcome the harm done by their financing fossil fuel projects.”

Working closely with the Sámi people—indigenous northern Europeans—the delegation has pressured Norway’s trillion-dollar sovereign wealth fund to drop fossil fuels from its holdings, a measure that’s been proposed by the fund’s leadership and will be formally decided on in the fall. A number of cities are looking to sever their ties to banks that fund fossil fuel projects, and New York City recently announced it would divest $5 billion from fossil fuels and sue oil companies over their contributions to climate change.

Banking better—without Wall Street

There have been ongoing efforts over the last several years for universities and pension funds to drop their investments in fossil fuels. Activists fighting mountaintop removal coal mining successfully targeted banks like PNC to stop financing the practice, and the fight against the Keystone XL pipeline spawned its own push against Bank of America. This most recent wave of energy in the fossil fuel divestment movement—targeting banks’ financing of fossil fuel infrastructure, in particular—was spurred by the momentum generated in the fight against the Dakota Access Pipeline (DAPL).

Matt Remle, who lives in Seattle, is a member of the Standing Rock Sioux tribe, and one of the lead organizers behind the protest against Chase earlier this month. Like Houska, he was deeply involved in the encampment there to halt the Energy Transfer Partners project. Both see that on-the-ground work as deeply tied to divestment efforts. “They’re all connected in the sense that folks have realized you have to have a lot of tools in the toolkit to take on multinational corporations,” he says. “You can’t rely solely on one tactic, be it divestment or direct action. You have to apply pressure wherever you can.”

In Seattle, he and several organizers first took aim at Wells Fargo over its support for DAPL, holding protests in bank lobbies and encouraging individuals, institutions and—eventually—the city itself to close their account with the bank.

The idea caught on. “We started getting a lot of phone calls from people around the country and around the world asking how we can implement similar divestment campaigns,” Remle tells In These Times. After that, he helped found the group Mazaska Talks, which offers sample resolutions and ordinances to those looking to start their own municipal divestment campaigns, along with resources on how to run divestment campaigns, where to re-invest funds and figure out which banks are funding which companies. Given banks’ ubiquity in towns and cities around the country, divestment efforts also provided a way for people who couldn’t join on-site direct actions or protests against fossil fuel infrastructure projects a way to help stop them.

With the support of progressive city council members, Seattle City Council voted to removed its $3 million operating account from Wells Fargo, and passed a resolution to prohibit any bank who funds tar sands pipelines from bidding on city contracts. It was recently announced, though, that the Council would reopen the account after failing to find another bank that would take on the account.

That’s a large part of why in Seattle and several other cities, divestment efforts are also tied to pushes to create a public bank. The Bank of North Dakota is currently the country’s only state-run bank, though Sen. Kristen Gellibrand (D. NY) recently introduced legislation to create a national public option for banking through the U.S. Postal Service. Remle says he and others looking to bring public banking to Seattle are looking more closely at a long-running effort to do the same in Santa Fe. Remle says they’ve also taken some inspiration from tribally-owned financial institutions, which are numerous in the Southeast, as alternatives to Wall Street banks, their toxic investments and their lon history of discriminatory lending practices.

“We know that as a city or as a tribe, when we are banking with a Wells Fargo or Chase or Bank of America, that money isn’t being reinvested back into our communities. We are very clear when we are pushing our banking ordinance that it’s not a victory to jump from one Wall Street bank to another,” he says. “Our ultimate goal for Seattle is to take our money completely out of there and have control over our own finances.” According to Remle, communities must create financial pathways to build out affordable housing and make low-interest loans available to people of color-owned small businesses.

The city is now in the early stages of a feasibility study for public banking, overseen by a representatives from labor, environmental groups, indigenous tribes and small businesses. At the behest of campaigners there, Los Angeles, San Francisco, Oakland and Portland are now involved in similar processes.

“To be blunt,” Remle says of big banks’ embrace of green financing, “they’re full of it.”

Why Public Banking is the End Goal of the Divestment Movement

Divestment: An Introduction

Something big is starting to happen in the world of activism. Grassroots campaigns are beginning to coalesce into coherent, focused missions with definable outcomes.

The Divest campaign is a classic example of how the People can have a tangible effect on society by speaking the language of the dominating classes: money.

Divestment is what it sounds like: removing public investments from corporate institutions, and repurposing them into organizations which will benefit the common good. This means leveraging the collective will through mass individual actions to force the perpetrators of corrupt and unscrupulous behavior to directly lose profits; in essence, to divest is to boycott.

Even in the world of international affairs, we hear of sanctions, which are nothing more than state actors divesting from another nation in order to conduct economic war. On the domestic front, we too face war- class war. As Warren Buffet, one of the richest individuals on earth put it, “there’s class warfare alright, but it’s my class that’s winning.” So applying this divestment strategy at the grassroots level to win very real battles in this economic war on behalf of the People is key to changing the world for the better, because it works.

At minimum, it sends a symbolic message that we are creating a culture of higher virtues and principles in which the divested institution and others like them are not welcome anymore. At best, very real systemic change can result.

A New Era of History

We are immersed in a post- Reagan era where the pendulum has swung away from America’s “big society,” the era of progressivism and the New Deal when our center was generally much further left. We have now come so far the other way that the wholesale dismantling of public programs in favor of a pro-big business agenda has transitioned from subtly disguised under Clinton and Obama neoliberalism, to naked and overt in the Trump era. Our center has shifted, and our society faces the consequences of this shift.

However, one unintended consequence of this big business-first culture is the fomenting of an increasingly organized left. This new left, feeling isolated and underrepresented in the grand halls of the federal government has been forced into city halls and state assemblies. Our current political climate is arguably beginning to surpass even the emotionally charged protests of the 1960’s as we see a more politically charged youth than we’ve seen in generations.

So undisguised is our big-business paradigm that when builders of the Dakota Access Pipeline obviously broke the law in North Dakota by illegally building on sovereign indigenous land with no approval by the local population, the police sided with the oil company, culminating into the brutal attacks on local demonstrators at Standing Rock.

These peaceful indigenous activists were simply standing up for their right to protect the local water supply, yet attack dogs, tear gas and firehoses were unleashed upon them, in order to clear way for big oil. The resistance was so strong and inspiring that sympathizers across the nation would begin to pour into Standing Rock. The cries of the water protectors were heard across the nation. Then something momentous happened- Seattle voted to divest their municipal bank accounts from their primary bank- Wells Fargo, due to their investment in the pipeline. Protest had officially been transmuted into effective legislation. Standing Rock was now everywhere.

We were inspired and decided to follow suit in Los Angeles, led by Seattle’s shining example. Divest LA was born.

The Divestment Movement

The theory and strategy are straightforward: the People within a municipal constituency pay taxes to their government, which then need banking services to manage those finances. Often, the banks that handle municipal accounts are also those that are guilty of fraud and corruption and invest in socially and environmentally destructive businesses. Therefore, We the People are complicit in the crimes of these businesses because we support them with our tax dollars.

We have the ability to change this by demanding that our elected representatives truthfully represent us by barring unethical institutions from having access to public money.

In December 2017, after less than a year of campaigning, Los Angeles City Hall officially voted to divest their money from Wells Fargo. Emotions were high as countless hours of researching, protesting, campaigning and lobbying by activists, indigenous leaders and supporters finally paid off. A very real victory was accomplished in one of the largest cities in the nation, leveraging our city government to have a tangible effect on one of the largest institutions on Wall St.

We sent a message: Our city will not support businesses that engage in environmental and social destruction.

LA is one more city in the chain reaction that began with Seattle. Cities across the US have also sprung up their own divestment campaigns. The tone is set: if we can do it, so can they. Something big is about to happen, the dominoes are set to fall one by one as other cities everywhere follow this example.

From symptom change to system change

The key question is: What is the ideal outcome of this movement?

The answer can be both sobering and exciting, but it is clear that we must continue forward motion while the tailwinds of change are gaining strength from the momentum of these successful divestments. We have an enormous opportunity to define the narrative and the strategy that will determine what this chain reaction will look like. We need inspired activists to follow suit in their own cities.

By asking what the ideal outcome is, rather than merely a good one, we arrive at an end goal that transcends any one symptom of our broken system, into a changing of the system itself.

This is why the divestment movement is ready to evolve into the Public Banking movement. Public Banking is nothing less than FULL DIVESTMENT(and RE-investment).

Divestment is a technical victory and has been an extremely important first step in the evolution of the movement, but the next phase in this evolution must be Public Banking. For a city to divest from a bank means to move from one private bank into another private bank. This addresses one symptom within the system of private banking that still permeates.

For a city to create its own public bank owned by the People and accountable directly to them, is to create an entirely new financial system on the People’s terms, which is the logical end-game of divestment. Instead of putting the money into another big private bank like divestment 1.0 does, it creates an entirely new bank with social and environmental responsibility defined in its charter.

Public Banking is the end of the line- the final frontier of divestment.

When Divest LA was launched and we began to do our research into alternatives, one thing became very clear. We knew we wanted to move the money from Wells Fargo… but the inevitable question became, where do we move the money to? Inescapably, it must be another big Wall St. bank, which still would be fundamentally designed for maximum shareholder profit, and at best would be ‘less-bad.’

Is that the best we can do? Less bad?

Public Banking

It was at that moment the idea of Public Bank LA was born. Why settle for a symbolic victory, with Wells Fargo as the sacrificial lamb, only for another Wall St. firm to gain the contract? Is that system change or symptom change?

The truth is, the divestment movements across the country will end up facing similar conundrums. The inevitable question of where the money will go will arise. And then Wells Fargo’s cronies in the bank oligarchy will simply pick up the contracts. Indeed, Seattle ended up being forced to return to Wells Fargo since no other banks picked up the contract– proving that a Public Bank of Seattle is truly the only route to success.

That’s why it’s time to evolve our view of divestment. Divestment is not a war victory, it is a strategic victory of the first battle of the war. Developing Public Banks specifically designed to be transparent, accountable and socially and environmentally responsible will completely change the financial sector from an antagonist of the common good to arbiter of the common good. Then the war will be won.

Put simply, most people have no idea that: Banks don’t have to be self-interested, profit-chasing, exploitative, private businesses. They can be publicly owned and publicly accountable.

Public banks can exist at national, state, or city levels.

In other words, imagine if every state and major municipality in the U.S. developed their own socially responsible public banks, owned by the public and accountable to them. What need would cities and states have for Wall St.? Why pay any private bank interest and fees with our tax dollars when that money could simply be reinvested into the public good, and set to promote the public good by design.

Rather than simply tolerating the rapacious private banks, we will have banks that are proactive agents in creating a better society. Rather than cynically accepting that banks are by definition exploitative, we can dare to define a new type of bank altogether- one that by its very nature is designed to be transparent and accountable to the people, to serve local community development, to do all business in a socially and environmentally responsible framework; Banks that are our allies…People’s Banks.

Paradigm Shift

“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”-R. Buckminster Fuller

Source: The Progressive

In this way, we move from reactive to proactive. Rather than reacting to private banks for doing what they are simply designed to do- prioritizing private profits over social or ecological considerations- we instead proactively create our own banks that are built to develop their local communities by prioritizing social good and sustainability with public profitability.

Divestment that is institutional (like universities divesting) and individual (like individually moving your bank account to a credit union) will always have a place. But specifically in the realm of public sector funds unwrangling the tentacles of rapacious finance, People’s Banking is the only true divestment that strikes at the root of this issue.

The assumption of democracy is that our system will reflect and be accountable to the will of the people. But while elected officials maintain the political sphere of persona and puppetry, it is actually the economic sphere that truly determines the state of our society and to which the political sphere is in fact subordinate- hence the glaring realities of oligarchy, income inequality, and the dependence of winning elections on private moneyed interests that permeate the defining discourse of our era.

It is then these moneyed interests that determine the direction of our current system since they are clearly its benefactors (follow the money), and it is exactly these very people who are unelected and unaccountable. Voting has a place, but so long as plutocracy and private banking maintain their free reign, the process will be largely one of window dressing, as decades of the hope/disappointment cycle can attest to.

By bringing banking under public control, so that the bankers that have the responsibility over our economy are accountable public servants rather than private casino gamblers, we can finally make progress towards a system that is legitimately, rather than superficially democratic.

This is why in California, we have organized a coalition called the California Public Banking Alliance– which is a network of municipal public bank organizers across the state. The vision is to have municipal public banks in all major cities in California. We hope to inspire other cities and states to join the public banking movement. Ultimately, every major city and every state in the nation will have its own public bank, and then we will look back and wonder how we ever allowed Wall St. such intimate access to public money.

We’re on the verge of a great shift and it’s imperative that the momentum is maximized. Motivated and organized activists around the country should not overlook the fact that simply divesting still results in another private bank providing financing for public projects. We must realize that creating our own municipal and state public banks is the true end game of the process. But when the public banking movement can firmly take hold in the imagination of activists nationwide, and state after state, city after city create socially responsible Public Banks, we will truly have started a Revolution.





David Dayen May 16 2018, The Intercept

AFTER INITIAL RELUCTANCE, House Republicans have finally reached an agreement to move forward on a bipartisan bank deregulation bill that the Senate passed in March. Its stated aim — to help rural community banks thrive against growing Wall Street power — appears to have been enough to power it across the finish line.

But banking industry analysts say the bill is already having the opposite effect, and its loosening of regulations on medium-sized banks is encouraging a rush of consolidation — all of which ends with an increasing number of community banks being swallowed up and closed down.

“We absolutely expect bank consolidation to accelerate,” Wells Fargo’s Mike Mayo told CNBC the day after the Senate passed the deregulation bill in March. The reason? Banks no longer face the prospect of stricter and more costly regulatory scrutiny as they grow. And regional banks in Virginia, Ohio, Mississippi, and Wisconsin have already taken note before the bill has even passed into law, announcing buyouts of smaller rivals.

The expected consolidation simply furthers an existing trend. Community banks have been struggling for decades against an epidemic of consolidation; the number of banks in America has fallen by nearly two-thirds in the past 30 years. Ironically, the one state that has seemingly figured out how to arrest this systemic abandonment of smaller communities is North Dakota, the home state of the bill’s co-author, Democratic Sen. Heidi Heitkamp.

That’s because North Dakota has a public bank.

Using idle state tax revenue as its deposit base, the Bank of North Dakota partners with community lenders on infrastructure, agriculture, and small business loans. It has thrived, earning record profits for 14 straight years, which have funneled back into state coffers. And while Heitkamp has complained that the Dodd-Frank Act has been disastrous for community banks, in North Dakota they appear to be doing well. According to a Institute for Local Self-Reliance analysis of Federal Deposit Insurance Corp. data, North Dakota has more banks per capita than any other state, and lends to small businesses at a rate that is four times the national average.

Yet nothing in the new measure, sometimes called the “Crapo bill,” after its main Republican co-author, Sen. Mike Crapo of Idaho, builds upon this proven method to revitalize community banks; it only bolsters the ability of larger regionals to scoop them up.

While a better solution appears to have been sitting in Heitkamp’s backyard, the actual bill, S.2155, has been highly anticipated by bank lobbyists, and should get a floor vote before the end of the month. House Financial Services Committee chair Jeb Hensarling, who had been holding out because he wanted even more deregulatory measures attached, has claimed an agreement with the Senate to move those provisions inside a separate vehicle. (Given the paucity of floor time before the midterm elections, that’s likely a face-saving statement.)

As The Intercept has reported, S.2155 carries something for financial institutions of any size, by hammering away at capital and leverage requirements, mandatory stress tests, mortgage disclosure and ability-to-repay rules, data to detect lending discrimination, and the Federal Reserve’s ability to apply special regulations to individual banks. Combined with efforts inside the agencies that regulate banks to weaken rules, it represents a pendulum shift away from safety and toward what critics claim will be another financial crisis.

Thanks to filibuster rules, Senate Democrats were necessary to provide the margin of victory, and 17 of them obliged, justifying their votes as necessary to maintaining the existence of small community banks and credit unions, which would otherwise disappear amid relentless industry consolidation.

Indeed, the past 30 years have witnessed a dramatic reduction in chartered banks, from 14,500 to fewer than 5,600. “If this pattern continues, we’ll only have Wall Street banks left,” said Sen. Jon Tester, D-Mont., to Politico. “And Wall Street banks won’t serve rural America, they won’t serve Montana. … So, what will rural America do?”

Implicit in this argument is that the Crapo bill represents the only hope for small community banks to survive without being swallowed up by bigger competitors. By lowering the cost of regulatory compliance, smaller banks would be given a fighting chance, the story goes. But that theory is at odds with the analysis of virtually every industry observer who has spoken about the Crapo bill.

“The last three to four months have been much more active than the previous two years,” said Sandy Brown, a partner with Alston & Bird’s Financial Services and Products practice group in Dallas. “I attribute that to an increase in the price of buyers’ stocks, tax changes in December, and a relatively more accepting regulatory environment.”

Brown pinpointed a critical provision in the Crapo bill, which raises the threshold for banks that are subject to enhanced regulatory standards from $50 billion to $250 billion. This obviously benefits the “stadium banks” — banks with over $50 billion in assets, big enough to have a stadium named after them — who get freed from stricter regulations, which include extra capital and liquidity requirements, stress tests, and souped-up risk management.

But it also gives banks under the $50 billion asset level that might want to get bigger plenty of additional breathing space. An acquisition that would have taken a bank over $50 billion might have been skipped before Crapo. But now, it can go through, as long as the new entity stays under $250 billion. “Those mid-tier banks will now look at doing deals,” Brown said. “They have a lot more headroom to grow by acquisition, as opposed to organic slow growth.”

This month, investment manager FJ Capital Management released a white paper noting that only two banks, CIT Group and New York Community Bancorp, have dared to break above $50 billion in assets since the passage of Dodd-Frank in 2010. “Raising these hurdles releases a new pool of acquirers, namely large regional banks that will benefit from mergers,” FJ Capital writes.

Other analysts concur with this perspective. American Banker cited several analysts and bank officials making this case last November. In a research note in April, Isaac Boltansky, of Compass Point Research, stated that the Crapo bill would “bolster burgeoning M&A [mergers and acquisitions] tailwinds.” Cowen and Co.’s Jaret Seiberg said in March, “We expect this to lead to greater capital returns and more M&A.”

A separate Crapo bill provision should also spur merger activity. Section 207 increases the Federal Reserve’s “small bank holding company” threshold from $1 billion to $3 billion. Banks that are eligible for this designation can operate with higher levels of debt than would otherwise be permitted. That, again, broadens headspace for hundreds of banks at the smaller end to combine without losing this significant benefit, which enables them to juice returns by using other people’s money. Half of all buyers and nearly all of the sellers in bank M&A deals since 2010 were below $1 billion in assets, according to the investment firm FJ Capital Management.

The increased pool of cash-flush buyers should blunt the mild regulatory relief in the Crapo bill for smaller banks. “It’ll be less expensive to operate a community bank,” said Brown, who is an M&A lawyer. “But the fact is, they have an aging shareholder base, an aging management and board, and a lot of them want out.” And more buyers chasing deals means higher prices, making selling out even more attractive. It’s like a Silicon Valley startup exit strategy, applied to community banks.

SO, TESTER’S CONCERN — that a more concentrated banking sector will pull out of rural America, leaving large chunks of the country behind — is made, if anything, worse by the bill he supports.

The impacts of this could be severe. In 2017, small business lending in rural America was half of what it was in 2004, according to the Wall Street Journal. Disappearing banks play a huge role, eliminating the kinds of community relationships that kept rural small business loans flowing. Venture capital in rural communities is scarce, making the bank the only place to get a loan. And, increasingly, the banks are leaving.

It’s unlikely that banks trying to merge their way to rapid growth will stick around. “One of the things we do a lot of these days is help investor groups buy a bank in a small town and move it to a larger metro area, where there’s a higher growth opportunity, and a quicker way to build assets,” said Brown.

In anticipation of the Crapo bill’s passage, the rush to deal has already begun. First Virginia Community Bank, which is around the $1 billion threshold, announced a merger with Colombo Bank earlier this month. In March, Civista, an Ohio-based firm, bought United Community Bank of Indiana, creating a $2.1 billion combined institution. At the higher end of the asset scale, BancorpSouth, with $17 billion in assets, purchased the $794 million Icon Bank in April. Associated Banc-Corp of Green Bay, Wisconsin, with $30 billion in assets, made plans to buy Diversified Insurance in February, along with Bank Mutual Corp.

In its report, FJ Capital Management estimated that the total number of chartered banks would decline by 50 percent over the next 10 to 15 years. That’s precisely the opposite of what the ringleaders of the Crapo bill on the Democratic side — Heitkamp, Tester, and Joe Donnelly of Indiana, all from predominantly rural states — hoped the bill would provoke. But they may have known who really wanted this legislation, if they looked into their own campaign finance filings.

According to data from the Center for Responsive Politics, Heitkamp, Donnelly, and Tester shot to the top of the list of senators receiving money from the financial industry in 2017, gathering $408,176. And prominent on that list are banks just under the $50 billion threshold. Employees of Signature Bank, a $41 billion bank based in New York, have given $112,000 to Democratic senators in the 2017-2018 election cycle, eight times as much as the 2015-2016 cycle with six month to go. Campaign finance data shows 45 Signature Bank donors for Donnelly and 38 for Heitkamp.

Signature Bank chair Scott Shay was explicit in his support of Donnelly and Heitkamp, telling the Financial Times, “We find it ridiculous and unacceptable that by virtue of … growing one day past $50bn, we will be burdened with rules intended for the mega ‘too big to fail’ banks.” The Signature Bank board includes former Congressperson Barney Frank, namesake of the Dodd-Frank Act. (Another luminary once sat on the board from 2011 to 2013: Ivanka Trump.)

Among sub-$50 billion banks, Hancock Holding Company in Gulfport, Mississippi ($27 billion), Texas Capital Bancshares in Dallas ($25 billion), and the aforementioned Associated Banc-Corp have also increased donations in 2017 and 2018.

In an email to The Intercept, Compass Point’s Boltansky said that the impact on M&A may not be immediate. For example, the increase in the enhanced regulatory standards threshold is phased, raising only to $100 billion immediately, and then to $250 billion in 18 months. He added that bank M&A also carries political risk, since it usually leads to layoffs.

But any belief that the Crapo bill will protect small community banks runs into the persistent long-term trend of consolidation. “The number of banks have declined every year since 1984,” said Marcus Stanley, policy director at Americans for Financial Reform. “It’s a long-term structural problem that I don’t think you’re solving here.”

When banks abandoned American Samoa, the islands found a solution nobody had used in a century

By Andrew Van Dam May 9, Washington Post, Email the author

By 2016, American Samoa was desperate. Its economy and population had been shrinking for years and hopes of a turnaround fell as the verdant volcanic islands in the South Pacific withered into banking desert.

The Bank of Hawaii announced in 2012 it intended to leave the U.S. territory entirely. It agreed to hang on until a successor could be found but scaled back services.

By 2016, officials and consultants say, no new loans had been issued for four or five years. Consumers who couldn’t afford to travel to Hawaii or the mainland resorted to backyard lenders and paid usurious rates.

In their desperation, the islanders found inspiration in early frontiersman and prairie progressives who had likewise found themselves on the margins of the American economy.

The islanders are now putting the finishing touches on the first new U.S. public bank in almost a century. The development is being closely watched by other isolated regions hoping to kick-start economic renewal — and by the legal marijuana industry whose operators have struggled to enter the federal banking system.

Public banks were once relatively common in the U.S. but today exist only in North Dakota. Typically, state and local governments own the banks and deposit their revenue there. The banks then offer loans, partnerships and services to boost the local economy and hopefully turn a profit.

No loans but plenty of sharks

The seven islands of American Samoa lie about six hours southwest of Honolulu by air. The territory is slightly larger than the District of Columbia and home to 60,000 American nationals. Its largest export is processed tuna under the Chicken of the Sea and StarKist brands.

If American Samoa were a state, it would have had the slowest GDP growth of any since the recession. If it were one of the 3,000-plus counties in the U.S., its average annual earnings would place it near the absolute bottom of the list, according to Commerce Department figures.

It would be an oversimplification to trace all the islands’ woes to a lack of credit and banking services, but it’s a convenient place to start.

Bankers desert the island

The Bank of Hawaii said “geographic isolation” drove it to wind up its operations after nearly 50 years in American Samoa. Australia’s ANZ bank still has a small presence but offers limited services.

To understand why banks are scaling back and why it causes American Samoa such pain, imagine a basic small-town bank. It takes in paychecks and other deposits from locals and uses them as reserves when lending to their neighbors, who then invest in property and businesses.

That model breaks down when banks span states or countries. The big banks with tiny branches in American Samoa are happy to take deposits from locals, but when it comes to lending that money back out, it makes cold, actuarial sense to focus on bigger, safer clients elsewhere.

Federal regulators have been struggling with this problem for decades. But variations have been present since soon after the country’s birth — and states have been taking matters into their own hands for almost as long.

The first wave of U.S. public banks arrived in the 1830s, when Andrew Jackson vetoed a bill to recharter the Second Bank of the United States, thrusting residents of frontier states like Indiana, Illinois and Alabama into the ranks of the unbanked. In desperation, about half of the states in existence founded public banks, some jointly owned by the private sector.

Almost all had folded by 1918, when high plains farmers still chafing at the economic stranglehold of Big Railroad and the high interest rates charged by Minneapolis and Chicago lenders voted the Nonpartisan League into full control of North Dakota’s government.

Led by former socialist A.C. Townley, League politicians passed myriad populist measures, but their most prominent legacy is the public Bank of North Dakota. It opened in 1919 and lent money to farmers at lower rates and deposited cash in small banks statewide.

Today, fueled in part by the oil boom in the Bakken shale formation, the bank says it has earned 14 years of record profits. It partners with banks, invests in businesses and offers student loans.  The Bank of North Dakota has both helped propel the state’s shale boom, which in turn has goosed its profits. (AP Photo/Dale Wetzel)

When your Hail Mary is a bank shot

Drew Roberts, general partner at the Utah financial services consulting firm Burton, Roberts and Meredith, first heard of American Samoa’s quest for a banking solution in 2013.

Roberts worked with government and business leaders on the islands to charter a new bank and — when that fell through — helped devise a scheme that hadn’t worked in a century.

After researching BND, leaders were convinced a public bank could work in American Samoa. Roberts started looking for retired folks who had started and run banks successfully, and who had experience (and connections) with federal regulators.

When former Celtic Bank president and chief executive Phil Ware heard their pitch to help start a government-owned bank on a tropical archipelago, he thought the consultants were crazy.

“[But] I made a few calls and found out the great need that there is down there,” said Ware, who first encountered Samoan language and culture on his mission for the Church of Jesus Christ of Latter-day Saints in New Zealand. “We need to help them get banking. How do you operate an economy without a bank?”

When Roberts first arrived in the territory and drove past an ANZ branch, he saw cars parked at the drive-through and a line of customers stretching far out the door.

“The first thing we thought was that it was a run on the bank,” Roberts said.  Only it wasn’t an old-school bank run. It was just payday, when everybody scrambled to turn their paychecks into cash before the bank ran out of bills.

American Samoans, Roberts and Ware found, had no access to credit cards, loans or the other financial tools that other Americans take for granted. Islanders living on the mainland faced wire-transfer fees over $150 to send money home.

When Ware agreed to become the first chief executive of the Territorial Bank of American Samoa, he thought it would be a “piece of cake.”

“I had no idea,” he says now.

The Territorial Bank of American Samoa (TBAS) served its first customers in October 2016 out of a leased office handed over by the Bank of Hawaii.

It was soon lending money and opening accounts. But it couldn’t offer basic services such as direct deposits or bank transfers until the Federal Reserve signed off on its routing number.

That usually takes a couple of weeks. This time, it took a couple of years. Few federal regulators had approved a new bank in a U.S. territory before, let alone one owned by a territorial government. They fretted about TBAS oversight and its political independence.

The team behind the public bank pressed their case all the way up to the vice president’s office, but it took a meeting with the freshly appointed Federal Reserve vice chair for supervision, Randal Quarles, who came from the Utah-based Cynosure Group, to break the logjam.

“He understood completely,” Roberts said. “All of a sudden, we get a call [from regulators] saying ‘we got the green light, let’s get this thing done.’”

TBAS now has a routing number and can offer cash transfers to the mainland, issue checks and provide card-swiping machines to merchants.

As with BND, the money customers entrust to TBAS is not guaranteed by the Federal Deposit Insurance Corporation. Instead, it’s backed by the full faith and credit of the territory of American Samoa.

The bank’s architects eventually plan to gain FDIC insurance and privatize the bank, although no timetable has been set.

Exporting more than just tuna

After TBAS, it appears unlikely the United States will have to wait another century to get its next public bank. The post-recession anti-bank backlash continues, and Sen. Bernie Sanders (I-Vt.), New Jersey Gov. Phil Murphy (D) and others have pushed for public banks to help revive marginal rural and urban areas.

Community banks are vanishing. Adjusted for inflation, the value of small-business loans in rural U.S. communities is half of what it was in 2004, according to a December 2017 analysis by the Wall Street Journal’s Coulter Jones and Ruth Simon.

As banks consolidate, lending shifts to safe, wealthy urban markets and capital flows away from small towns. It accelerates their economic decline, making them even less attractive to big banks, and the cycle intensifies.

North Dakota has avoided the worst of this cycle. The rural state has more banks per capita than any other and, according to FDIC data analyzed by the nonprofit Institute for Local Self Reliance, lends to small businesses at more than four times the national rate.

The public bank’s partnerships help cushion private-sector banks against downturns and other economic shocks. Those partnerships also avoid questions of inefficiency and corruption that have dogged public banks such as the state-run Banco do Brasil, said Middle Tennessee State University lecturer Walker Todd, a former lawyer for the New York and Cleveland Feds.

“If you’re going to have a public bank, it better look like the Bank of North Dakota,” Todd said. “Once you start making retail loans you’re going to start looking like [Banco do Brasil].”


The vast majority of public-bank campaigns have yet to yield results, but public banking remains one of the few practical options for chartering a bank outside the watchful eye of the FDIC.

And it might not lead to undue risk. Ronnie Phillips, economics professor emeritus at Colorado State University, said that, with proper safeguards a public bank could effectively be guaranteed by steady deposits from its government.

“It’s very doable, especially these days, to have a publicly chartered bank,” Phillips said. “You don’t have to really worry about the safety and security of it because it’s a state bank.”

And you also don’t have to worry about FDIC oversight. Which might be useful if your state has legalized marijuana and the attorney general is Jeff Sessions. It doesn’t bypass the Fed’s role, but it’s a step toward local independence.

Because it’s a Schedule One drug, federal regulators view cannabis-related deposits and transfers as drug money. That has forced most of the legal marijuana industry to do their business in cash, which — much as it has in American Samoa — limits growth, increases operating costs and enables tax evasion.

The industry is trapped on the margins. Large banks don’t think it’s worth the risk and federal regulators view it with mistrust. So, like frontier states in 1833, North Dakota in 1919 and American Samoa today, officials in CaliforniaMassachusettsWashington state and elsewhere are looking into creating their own public banks.

Andrew Van Dam covers data and economics. He previously worked for the Wall Street Journal, the Boston Globe and the Idaho Press-Tribune.

The race to create the next Public Bank in the United States has been won by far flung American Samoa! In early April, the Federal Reserve — after two years of delay — allowed the Territorial Bank of American Samoaaccess to the U.S. payments system.  An article in American Banker by editor-in-chief Rob Blackwell quotes PBI Chair Ellen Brown:  “It does set a precedent. … It definitely will add impetus.”

The article continues:

“It’s a huge deal for the people of American Samoa,” Phil Ware, president of the Territorial Bank, said in an interview. … “There hasn’t been a commercial loan made on the island in five years or more,” he said. “So one of the first things we want to start doing is extend credit to the small-business community. That is a necessary part of the economy.”

Public-bank supporters, meanwhile, see the Fed approval as a sign that there won’t be regulatory hurdles to the creation of additional public banks in the U.S.” read more


News of the postal banking bill spurs several reports 

The step taken by Sen. Kirsten Gillibrand last week to introduce new legislation that would require every Post Office in the country to provide basic banking services has generated quite a few articles.

The Hill published an excellent opinion article by two economists articulating just how expensive it is to be poor in this country without any banking access: “The average payday loan charges the equivalent of nearly a 400 annual percentage rate (APR).” The authors describe the “banking deserts” that exist in many poor communities and praise the Public Bank model:

“To fully participate in the modern economy, people need access to financial infrastructure — the ability to cash and write checks, send money, pay bills, have access to credit, etc. A public bank, if done well, could address these glaring problem in the current financial services landscape.”

Another article in ThinkProgress makes the point that Gillibrand’s bill ups the stakes while riding on the coat tails of tireless work done for many years by behind-the-scenes advocates such as law professor Mehrsa Baradaran and Katherine Isaac of the Campaign for Postal Banking. Isaac said in response:

“We’re happy to have Sen. Gillibrand’s enthusiasm added to the chorus, but we’re still pushing for the things the postal service can do now.”


Fed researchers propose issuing Digital Federal Reserve Notes

Control Structure of Currencies

Researchers at the St. Louis Federal Reserve reviewing Bitcoin and other cryptocurrencies say that a “Fedcoin” on the cryptocurrency model would not be feasible. What they recommend instead is that the Fed allow individuals to bank at the Fed in digital dollars, just as banks are allowed to do now. This ability would eliminate the risk of bank runs, since the Fed can’t run out of dollars, and would force private banks to raise the interest rates they pay on deposits if they want to keep their depositors. The Fed would be issuing digital dollars, expanding the supply of “legal tender” issued by the government. Currently legal tender is only 5% of the money supply (the 5% that is in paper dollars); the other 95% is issued privately by banks.

Now we just need to make the Fed truly “federal.” The Fed is actually our biggest “public” bank. The problem is — as we all know — it’s not really public. We need to nationalize the Fed, making it a true public utility!

From an article in CCN:  “In an effort to assign Bitcoin one of the above monetary categories, the researchers concluded that Bitcoin actually defied traditional categorization – it’s none of the above …

From the St Louis Fed report“We believe that there is a strong case for central bank money in electronic form […] central bank electronic money satisfies the population’s need for virtual money without facing counterparty risk.”


Ellen Brown: Fox in the Henhouse: Why Interest Rates Are Rising

Ellen Brown’s latest article in TruthDig tackles the Fed’s current penchant for raising its benchmark interest rate — and the disastrous effects it’s already having. Ellen says the Fed’s reasons don’t pass the smell test. Instead, it’s another case of follow the money: Who benefits from increasing interest rates? Good guess … the banking sector (and, naturally, the Fed’s seven member Board of Governors).

Ellen writes:

Wall Street calls the shots, and Wall Street stands to make a bundle off rising interest rates. … The Federal Reserve calls itself independent, but it is independent only of government. It marches to the drums of the banks that are its private owners. To prevent another Great Recession or Great Depression, Congress needs to amend the Federal Reserve Act, nationalize the Fed and turn it into a public utility, one that is responsive to the needs of the public and the economy.

Complete article below:

On March 31 the Federal Reserve raised its benchmark interest rate for the sixth time in three years and signaled its intention to raise rates twice more in 2018, aiming for a Fed funds target of 3.5 percent by 2020. LIBOR (the London Interbank Offered Rate) has risen even faster than the Fed funds rate, up to 2.3 percent from just 0.3 percent 2 1/2 years ago. LIBOR is set in London by private agreement of the biggest banks, and the interest on $3.5 trillion globally is linked to it, including $1.2 trillion in consumer mortgages.

Alarmed commentators warn that global debt levels have reached $233 trillion, more than three times global GDP, and that much of that debt is at variable rates pegged either to the Fed’s interbank lending rate or to LIBOR. Raising rates further could push governments, businesses and homeowners over the edge. In its Global Financial Stability report in April 2017, the International Monetary Fund warned that projected interest rises could throw 22 percent of U.S. corporations into default.

Then there is the U.S. federal debt, which has more than doubled since the 2008 financial crisis, shooting up from $9.4 trillion in mid-2008 to over $21 trillion now. Adding to that debt burden, the Fed has announced it will be dumping its government bonds acquired through quantitative easing at the rate of $600 billion annually. It will sell $2.7 trillion in federal securities at the rate of $50 billion monthly beginning in October. Along with a government budget deficit of $1.2 trillion, that’s nearly $2 trillion in new government debt that will need financing annually.

If the Fed follows through with its plans, projections are that by 2027, U.S. taxpayers will owe $1 trillion annually just in interest on the federal debt. That is enough to fund President Trump’s original trillion-dollar infrastructure plan every year. And it is a direct transfer of wealth from the middle class to the wealthy investors holding most of the bonds. Where will this money come from? Even crippling taxes, wholesale privatization of public assets and elimination of social services will not cover the bill.

With so much at stake, why is the Fed increasing interest rates and adding to government debt levels? Its proffered justifications don’t pass the smell test.

‘Faith-Based’ Monetary Policy

In setting interest rates, the Fed relies on a policy tool called the “Phillips curve,” which allegedly shows that as the economy nears full employment, prices rise. The presumption is that workers with good job prospects will demand higher wages, driving prices up. But the Phillips curve has proved virtually useless in predicting inflation, according to the Fed’s own data. Former Fed Chairman Janet Yellen has admitted that the data fail to support the thesis, and so has Fed Governor Lael Brainard. Minneapolis Fed President Neel Kashkari calls the continued reliance on the Phillips curve “faith-based” monetary policy. But the Federal Open Market Committee (FOMC), which sets monetary policy, is undeterred.

“Full employment” is considered to be 4.7 percent unemployment. When unemployment drops below that, alarm bells sound and the Fed marches into action. The official unemployment figure ignores the great mass of discouraged unemployed who are no longer looking for work, and it includes people working part-time or well below capacity. But the Fed follows models and numbers, and as of this month, the official unemployment rate had dropped to 4.3 percent. Based on its Phillips curve projections, the FOMC is therefore taking steps to aggressively tighten the money supply.

The notion that shrinking the money supply will prevent inflation is based on another controversial model, the monetarist dictum that “inflation is always and everywhere a monetary phenomenon”: Inflation is always caused by “too much money chasing too few goods.” That can happen, and it is called “demand-pull” inflation. But much more common historically is “cost-push” inflation: Prices go up because producers’ costs go up. And a major producer cost is the cost of borrowing money.

Merchants and manufacturers must borrow in order to pay wages before their products are sold, to build factories, buy equipment and expand. Rather than lowering price inflation, the predictable result of increased interest rates will be to drive consumer prices up, slowing markets and increasing unemployment—another Great Recession. Increasing interest rates is supposed to cool an “overheated” economy by slowing loan growth, but lending is not growing todayEconomist Steve Keen has shown that at about 150 percent private debt to GDP, countries and their populations do not take on more debt. Rather, they pay down their debts, contracting the money supply. That is where we are now.

The Fed’s reliance on the Phillips curve does not withstand scrutiny. But rather than abandoning the model, the Fed cites “transitory factors” to explain away inconsistencies in the data. In a December 2017 article in The Hill, Tate Lacey observed that the Fed has been using this excuse since 2012, citing one “transitory factor” after another, from temporary movements in oil prices to declining import prices and dollar strength, to falling energy prices, to changes in wireless plans and prescription drugs. The excuse is wearing thin.

The Fed also claims that the effects of its monetary policies lag behind the reported data, making the current rate hikes necessary to prevent problems in the future. But as Lacey observes, GDP is not a lagging indicator, and it shows that the Fed’s policy is failing. Over the last two years, leading up to and continuing through the Fed’s tightening cycle, nominal GDP growth averaged just over 3 percent, while in the two previous years, nominal GDP grew at more than 4 percent. Thus “the most reliable indicator of the stance of monetary policy, nominal GDP, is already showing the contractionary impact of the Fed’s policy decisions,” says Lacey, “signaling that its plan will result in further monetary tightening, or worse, even recession.”

Follow the Money

If the Phillips curve, the inflation rate and loan growth don’t explain the push for higher interest rates, what does? The answer was suggested in an April 12 Bloomberg article by Yalman Onaran, titled “Surging LIBOR, Once a Red Flag, Is Now a Cash Machine for Banks.” He wrote:

The largest U.S. lenders could each make at least $1 billion in additional pretax profit in 2018 from a jump in the London interbank offered rate for dollars, based on data disclosed by the companies. That’s because customers who take out loans are forced to pay more as Libor rises while the banks’ own cost of credit has mostly held steady.

During the 2008 crisis, high LIBOR rates meant capital markets were frozen, since the banks’ borrowing rates were too high for them to turn a profit. But U.S. banks are not dependent on the short-term overseas markets the way they were a decade ago. They are funding much of their operations through deposits, and the average rate paid by the largest U.S. banks on their deposits climbed only about 0.1 percent last year, despite a 0.75 percent rise in the Fed funds rate. Most banks don’t reveal how much of their lending is at variable rates or indexed to LIBOR, but Onaran comments:

JPMorgan Chase & Co., the biggest U.S. bank, said in its 2017 annual report that $122 billion of wholesale loans were at variable rates. Assuming those were all indexed to Libor, the 1.19 percentage-point increase in the rate in the past year would mean $1.45 billion in additional income.

Raising the Fed funds rate can be the same sort of cash cow for U.S. banks. According to a December 2016 Wall Street Journal article titled “Banks’ Interest-Rate Dreams Coming True”:

While struggling with ultralow interest rates, major banks have also been publishing regular updates on how well they would do if interest rates suddenly surged upward. … Bank of America … says a 1-percentage-point rise in short-term rates would add $3.29 billion. … [A] back-of-the-envelope calculation suggests an incremental $2.9 billion of extra pretax income in 2017, or 11.5% of the bank’s expected 2016 pretax profit.

As observed in an April 12 article on Seeking Alpha:

About half of mortgages are … adjusting rate mortgages [ARMs] with trigger points that allow for automatic rate increases, often at much more than the official rate rise. …

One can see why the financial sector is keen for rate rises as they have mined the economy with exploding rate loans and need the consumer to get caught in the minefield.

Even a modest rise in interest rates will send large flows of money to the banking sector. This will be cost-push inflationary as finance is a part of almost everything we do, and the cost of business and living will rise because of it for no gain.

Cost-push inflation will drive up the consumer price index, ostensibly justifying further increases in the interest rate, in a self-fulfilling prophecy in which the FOMC will say: “We tried—we just couldn’t keep up with the CPI.”

A Closer Look at the FOMC

The FOMC is composed of the Federal Reserve’s seven-member Board of Governors, the president of the New York Fed and four presidents from the other 11 Federal Reserve Banks on a rotating basis. All 12 Federal Reserve Banks are corporations, the stock of which is 100 percent owned by the banks in their districts; and New York is the district of Wall Street. The Board of Governors currently has four vacancies, leaving the member banks in majority control of the FOMC. Wall Street calls the shots, and Wall Street stands to make a bundle off rising interest rates.

The Federal Reserve calls itself independent, but it is independent only of government. It marches to the drums of the banks that are its private owners. To prevent another Great Recession or Great Depression, Congress needs to amend the Federal Reserve Act, nationalize the Fed and turn it into a public utility, one that is responsive to the needs of the public and the economy.


New academic study depicts the strong benefits of a state Public Bank in New Jersey

new report issued by the William J. Hughes Center for Public Policy at Stockton University touts the important specific benefits that New Jersey could expect from starting its own state bank. The report recommends that Gov. Murphy implement both a feasibility study and a draft business plan to help a state bank hit the ground running.

Deborah M. Figart, PhD, Distinguished Professor of Economics writes:

Every $10 million in new lending by the State Bank of New Jersey would yield an additional $16 – $21 million in state output (Gross State Product), raise state earnings by $3.8 – $5.2 million, add 60 – 93 new state jobs, and increase state value-added by roughly $9 – $12 million. …

“Despite numerous accounts documenting the Bank of North Dakota’s longstanding success, [currently the only Public Bank in the US], this exemplary model has only recently generated serious consideration by other states, including New Jersey.” read more


How would a Public Bank be run? Glad you asked.

Community members and public officials alike often ask how would a Public Bank be run? In true keeping to the nature of “public”, ultimately, the structure of a Public Bank is the responsibility of the community to actively decide. The values of the community it serves would be reflected in the charter of the Public Bank.

Determining those values could include surveying the population and voting on the bank’s principles.

As one example, the Oakland advocacy group Friends of the Public Bank of Oakland has completed a comprehensive bank governance document put together by its governance committee. Their proposed Oakland Public Bank policy outlines:

  • Strong progressive values
  • A Board of Directors with a majority of members drawn from the community, as well as representation from various experts
  • Board decisions by consent, rather than simple majority rule
  • An Academy to train Directors (based on the practice of the Sparkasse public banks in Germany)
  • Expansive and community-centered loan policies [Read the full document here]


Pennsylvania Green Party candidate for Governor supports Public Banks

Pennsylvania Green Party endorsed long-time Public Bank advocate Paul Glover as candidate for Governor at their state convention on March 18. A resident of Philadelphia, Glover is a long-time social entrepreneur who has founded 18 campaigns for ecology and justice. He has authored six books on community power and previously taught urban studies at Temple University and ecological economics at Philadelphia University.

Paul Glover said: “As governor, I will support progressive taxation, alternatives to incarceration, funding equity for public education, regional organic agriculture, expanded rail systems, decriminalization of marijuana, bolder union organizing, and a state bank whose deposits serve Pennsylvania.”

VIDEO: Rep. Pamela Powers Hannley advocates a Public Bank for Arizona

PBI Board Member AZ Rep. Pamela Powers Hanley is actively working to create a Public Bank that will work for Arizona. She posted on Facebook her latest take on progress.

Rep. Pamela Powers Hanley said: “Today we debated and voted on multiple bills, including SB1150, proposed by Senator David Farnsworth. Although we have our differences of opinion, Senator Farnsworth and I agree that helping small local businesses and community banks will grow our state’s economy. We also have a common interest in the economic development potential of public banking. Giveaways don’t work.”


Seizing the Public Banking moment – article series

Matt Stannard has launched the first of a ten-part series on the Public Banking movement in Occupy.com. It will feature interviews with economists, historians, and activists of varying levels of involvement in the economic justice movement in general, and the public banking movement specifically.

Matt Stannard writes: “Recognizing that the generation and value of money are artificial, and that how we pay for things is fundamentally a political question, advocates of financial democracy see banking – the power to lend money and to create value through the act of lending – as an enormous power. Such power should be democratic, not autocratic.”


PBI hosts strategic planning summit to support advancing Public Bank initiatives

PBI Summit video by Carlos Marroquin

The Public Banking Institute brought together in early March representatives from key active Public Bank initiatives for a strategic planning summit. The group included over 50 diverse, experienced professionals — former bankers, legislators, authors and academics, as well as grassroots organizers, political organizers, and labor leaders. All attending spent their weekend devoted to strategizing how to make Public Banks that have a mandate to serve the public interest a reality for our states and cities.

How’d it go? Read this inspiring Twitter thread from David Jette of Public Bank LA for a taste of the shared energy.

Watch this short video from grassroots organizer extraordinaire Carlos Marroquin of the Bernie Sanders Brigade and Yes CA Public Bank to see how hard at work we all were at the ongoing workshops.

What’s next? Look for a media and social media primer as well as many other important initiatives to support those hard at work on the ground.

[watch the video]