We Need a public bank redux

We need a public bank!!

Why?  Don’t the banks we already use provide necessary services in a modern day economy?  And don’t we use their checking accounts and savings accounts for safely keeping our money and safely paying bills?  (Yes, I know we also use them to finance our homes and cars.)

Most Americans find it better to use ATM cards and debit cards and check writing over having to carry cash about for everyday activities.  It’s also safer, we think.

But the banks we see on almost every corner do not serve everyone well.  And it seems that with the exception of credit unions and the Public Bank of North Dakota, all other banks favor their shareholders over depositors.  As a result,  many millions of Americans cannot use these bank services because they are simply too expensive.  

Banks are not like the post office or like public schools and universities.  They are not utilities like the telephone company or the gas company. So in California, a million households are “unbanked.”  (The number of “unbanked” households rises to 24 million nationwide.)

That million or so Californian households often cannot afford either the minimum deposit required for a bank account or  the bank’s fees and charges.  They are simply  too costly to a family living on a low income.  For example, a fast food worker  at MacDonald’s might be unable to provide a $5000 minimum balance required for a checking account without fees.  Or, an immigrant might find the paperwork too complicated to navigate.  He or she would have to use a pay day lender or  a check cashing business at a cost of 1% to 12% of their hard earned money.

Even if they could find a bank offering a low fee checking account, other charges and fees, such as overdraft fees, can prove to be too expensive.  A teenager, for example, with such a checking account, might make a  rookie mistake and bounce a check for $60.  The overdraft fees could mount to $300.

In short, the poor would benefit from a banking system that offers free checking services and no extra fees. But not just the poor.

Our state, towns, cities and counties could also benefit.  A public bank could accept deposits of tax revenue  and provide the means to pay for infrastructure projects, low income housing, environmental projects at a cost lower than the private banks.  Even the building of a new basketball court in an inner city playground.

Currently, 50% of the cost of infrastructure projects comes from bank fees.  That could be cut in half with a public bank.

Currently, there is only one public bank in the United States, the Public Bank of North Dakota.  But never fear, a number of states, including New York, Massachusetts and New Mexico and cities, including Los Angeles, New York and Philadelphia are working toward creating public banks.  And in California, the State Assembly passed AB1177 and in October 2021, Governor Gavin Newsome signed the California Public Banking Acct.

But wouldn’t taking this money out of the private banks create a backlash?

No, in both the recently enacted AB 1177 and with the Public Bank of North Dakota, the public banks would work through the private banks, partnering with them to provide low interest loans and free banking services.   In other words, an environmentally friendly infrastructure project, such as low income housing,  could be financed through the public banks.  But the people wanting to build the homes would go to their local bank to file a loan application.  The local bank would oversee the application and then accept the funds to be deposited and adminstered.  BUT, 90 to 95% of the loan funds would come from the public bank.  (There are other advantages for the local private bank, but that gets wonky and will be discussed in a subsequent report…on May 5.)

So why do we need a public bank?  At this point in the story, I find that listeners and readers begin to daydream, or their eyes begin to glaze over in anticipation of a nerdy discussion of finance.  But I’ll get back to that next month, in “We Need a Public Bank, Update.”  And I will try to avoid wonkiness.




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