Now is the time to create a public banking system as the city prepares for deep budget cuts amid an inequitable economic crisis stemming from the Coronavirus pandemic, advocates testified Wednesday.
The state legislature is considering a bill, introduced in January, which would authorize local municipalities to lend money to public banks and authorize public ownership of stock in them.
The bill is currently both in the state Assembly and Senate legislature’s banks committees for evaluation before it is scheduled for a vote. The Senate bill S5565A and the Assembly bill A09665A, introduced by Queens state Senator James Sanders and state Assemblymember Ron Kim, respectively.
“Through public banking, New York can reinvest in local communities and strengthen our economy. Public banks would support small and worker-owned businesses, affordable housing, living-wage jobs, responsible financial services, renewable energy and other sustainable infrastructure, and more – meeting critical community needs and strengthening our ability to withstand future crises,” said Tousif Ahsan, the Civic Engagement Coordinator for the New York Public Interest Research Group (NYPIRG), in testimony Wednesday.
A public bank is a bank of which a state, municipality or other public entity is the owner–unlike a private bank, where the owners are usually private shareholders. Current major public banking models include the Bank of North Dakota and the German Public Bank System as well as many nations’ postal bank systems. In North Dakota, the public banking system was created to serve its agricultural economy and has existed for more than a century.
Last October, California passed a law that would allow local counties and municipalities to create public banks. The following month, San Francisco launched a task force to create a plan for establishing a public bank for that city. The task force report is due June 30th.
In New York, Public Bank NYC, a coalition of over 30 advocacy groups, has been pushing elected officials for the last two years to create a public bank system for local or state governments. NYPIRG, Chayya Community Development Corporation, New Economy Project, South Bronx Unite, Cooper Square Committee, New York Communities for Change, Brooklyn Cooperative Federal Credit Union are some of the members of the coalition.
According to the coalition, under current law, local governments who are interested in establishing a public bank must apply for a commercial bank charter, which advocates say forces the local government to change the public banking approach to conform to a system designed for private, for-profit banking.
The Sanders bill would update and authorize the state Department of Financial Services to issue special-purpose public bank charters to counties and regions across the city.
“In New York, all the money that gets collected by a city or a state has to go somewhere. So the city collects your taxes, it collects fees and interest from all different sources and that money is being spent in different ways throughout the year. But there’s always a pool of like several billion dollars, which is the city’s cashflow,” says Andy Morrison, campaigns director for New Economy Project (a group in the Public Bank NYC coalition).
Morrison said the mayor, the comptroller and the head of the department of finance, appointed by the mayor, decide which banks are designated to the city’s capital. JP Morgan Chase is one of the banks.
Morrison said the city should create its own institution so that, instead of giving it to Wall Street banks to hold onto, it can leverage it. For example, in North Dakota, the state deposits revenue in the public bank and then it is able to leverage those deposits and make loans to support economic development within the state. Public banks can also partner with smaller community banks and smaller credit unions that serve low-income, immigrant neighborhoods and communities of color around the city to expand financial options for consumers.
Advocates in their testimony said the case for public banking was strengthened by the way for-profit banking reacted during the Coronavirus epidemic. “Big banks have shut out small businesses from desperately-needed emergency relief,” read the testimony, during the pandemic crisis and a public bank would support small businesses hardest-hit by COVID-19, “Through public banking, New York can reinvest in local communities and strengthen our economy. Public banks would support small and worker-owned businesses, affordable housing, living-wage jobs, responsible financial services, renewable energy and other sustainable infrastructure, and more – meeting critical community needs and strengthening our ability to withstand future crises.”
Not everyone loves the idea of public banking. “The risks of public banks are many, but a scattered business focus, undue political influence and lack of oversight top the list,” read a 2018 op-ed in The Hill. “Distant U.S. history records the experience of several state banks — and they were not happy ones. Nearly all failed, usually because of political interference that resulted in making risky loans or operating with too little capital (or both), then collapsing when boom times ended.”
The author, Rob Nichols, is the president and CEO of the American Bankers Association. The opposition of the banking industry could be formidable: Over the past decade, banks, banking trade groups and PACs have donated more than $3.5 million to candidates for local and state office throughout New York, according to a state Board of Elections database.