In today's financial landscape, public banking is gaining attention as a viable alternative to the traditional private commercial banking system. A public bank is a financial institution owned and operated by a government entity, such as a state, municipality, or public actors. While this concept might seem novel to many, it has a long history and has been successfully implemented in various parts of the world. This article explores the benefits of public banking and makes a case for the establishment of a state-owned bank in Florida, taking inspiration from successful models like the Bank of North Dakota.
Understanding Public Banking
Before delving into the advantages of public banking, it's crucial to grasp its fundamental principles. According to the Public Banking Institute, a public bank is a chartered depository bank where public funds are deposited, owned by a government unit, and mandated to serve a public mission reflecting the values and needs of the public it represents. Unlike state socialism, public banking involves government oversight of the credit and debit system, facilitating economic exchange, including free markets.
Public Banks vs. Credit Unions
Public banks differ from credit unions, which are private entities collectively owned by their members. Federal law in the United States limits credit unions' commercial lending capacity, effectively preventing them from operating as primary credit-issuing institutions. In contrast, public banks have a broader mission and financial scope.
How Public Banks Work
Public banks employ various models for capitalization, including initial government investments, tax and fee revenues, and deposits of government income. They can create money in the form of bank credit and provide loans at low-interest rates. Unlike private banks, public banks have no shareholders to satisfy, allowing them to pass on low rates to borrowers, such as public agencies, local businesses, residents, and students. However, it's important to note that public banks receive funding from state deposits, which would otherwise earn more from private banks, creating a hidden subsidy and benefiting borrowers.
Public banks can also collaborate with local banks by underwriting or guaranteeing loans for projects that might otherwise lack funding. This partnership approach fosters synergy rather than competition between public and private financial institutions.
Bank of North Dakota: A Successful Model
The Bank of North Dakota (BND) serves as a remarkable example of a state-owned public bank in the United States. Established in 1919, its mission is to promote agriculture, commerce, and industry while supporting local financial institutions. The BND serves as the legal depository for all state funds in North Dakota and uses these deposits to fund development, agriculture, and small businesses.
One key feature of BND is its ability to generate profits consistently, benefiting the state and its residents. The bank's earnings are either deposited in North Dakota's general fund or used for economic development within the state. Over the years, the BND has contributed millions to the state's general fund, reducing the tax burden on residents and supporting education and public services.
Public Bank vs. Private Commercial Bank: Purposes and Benefits
The primary difference between a public bank and a private commercial bank lies in their purposes. While commercial banks aim to maximize profits for shareholders, public banks are focused on serving the needs of the community they represent. Public banks enjoy privileges such as the ability to make loans up to nine times their actual deposits and access low-interest rates through the Federal Reserve System, allowing them to provide low-cost loans for various civic projects.
Types of Public Benefits a Public Bank Can Provide
A state-owned public bank offers a range of benefits to the community, including low-interest loans for infrastructure projects, public housing, and online depository banking services for underbanked residents. These banks also provide commercial loans to businesses in partnership with community banks and credit unions, support community development financial institutions (CDFIs) for community revitalization, and offer loans and startup seed money for worker cooperatives.
How a Public Bank Serves the Community
A public bank leverages deposits made by government entities to provide loans at reduced interest rates for civic projects. By reinvesting money back into the community, public banks reduce the overall cost of these projects. The bank only invests in loans serving the immediate community's needs, avoiding competition with local community banks, and strengthening local lending.
Conclusion
Public banking is an innovative approach that can empower local governments to have more control over their financial resources and address the unique needs of their communities. Taking inspiration from successful models like the Bank of North Dakota, the establishment of a state-owned bank in Florida could lead to reduced costs for government services, support local banks, provide banking services to underserved individuals and entities, and promote economic development in line with the state's shared notions of social good. Public banking holds the potential to create a more resilient and prosperous future for Florida and its residents, aligning with the vision of a financial system that truly serves the public interest.
Interested in achieving Public Banking in Florida? Watch this Public Banking webinar for more details and how you can help!
Edited Version from Original Contributed by Franklin Perez
[2] Bank of North Dakota Wikipedia article -----> https://en.wikipedia.org/wiki/Bank_of_North_Dakota
[3] Public Banks: Bank of North Dakota -----> https://ilsr.org/rule/bank-of-north-dakota-2/
[4] All About Public Banking -----> https://coloradopublicbankingcoalition.org/about/all-about-public-banking/
[5] Worker Cooperative Wikipedia article ------> https://en.wikipedia.org/wiki/Worker_cooperative
[6] "Public Banking Made Easy - Public Banking Institute" YouTube Video -----> https://www.youtube.com/watch?v=lpho-eie-fw