Neil Powers looks into some of the pros and cons of creating one here in Seattle
(Special note: Outside City Hall was going to post this story later accompanying it with another post examining the legal and constitutional issues some say are major hurdles to creating a public bank here in Seattle or anywhere in Washington State. We’re’ still working on that story, but decided to go ahead now with Neil’s overview in light of last week’s well attended workshop on the topic and the fact that one Mayoral candidate, Bob Hasegawa, has made it a centerpiece of his campaign)
The public bank, Bank of North Dakota (BND) https://bnd.nd.gov/ serves as a model for advocates of a City of Seattle-run bank that could add hundreds of millions of dollars to city revenues over time and serve as one option to slow the rate of property taxes in the city. BND earned $477.9 million over the last three years. Pipe dream for Seattle? It is one of several cities to explore creating city public banks in the U.S. The timing may not align but Seattle is in the market for a new bank, given the city’s intent to withdraw its funds from Wells Fargo by the end of 2018.
The Seattle Public Bank Coalition http://www.seattlepublicbanking.org/ and Seattle mayoral candidate state Senator Bob Hasegawa want to see a public bank for the city. (One other Mayoral canddate, Nikkita Oliver, has expressed interest in a public bank.) Hasegawa is working on another front in Olympia, promoting efforts for a state-wide public bank. No success on that front yet. If he is elected mayor, Hasegawa’s public bank efforts in the legislature will continue. “We’ve got a Legislative State Bank Caucus, who is committed to passing something in 2018,” he says. He questions if state authorization for a local municipal bank is absolutely necessary.
Why a public bank for Seattle?
Rather than individual accounts for customers the bank would be geared to financing efforts such as public infrastructure projects. Hasegawa says $100 million in a Seattle municipal bank could leverage $1 billion, some of which could be used to help build more affordable housing.
Why not put city funds in a credit union rather than open a city bank? “It’s much better for us to borrow from and repay interest on loans rather than someone else, then we’ll build internal capacity,” Hasegawa says. “We’d avoid all taxes and/or fees on all transactions and overhead like insurance, etc.” He does not see credit unions as having capacity to fund large projects.
He sees a public bank as saving huge amounts of money on higher interest loans that big banks offer. Those savings could be plowed back into projects that benefit people of Seattle, from large infrastructure to sidewalks.
Marc Armstrong, president of Commonomics, a group promoting public banking in the U.S., talked with Outside City Hall on where cities put their dollars matters. “In every community outside of North Dakota, state and city treasurers place public money on deposit into private banks. This essentially gives away the public credit for private banks to use as they wish, a highly irresponsible position.
John Repp is a retired machinist, active in the Seattle Public Bank Coalition. “At first it would probably be loaning for public infrastructure projects.” Repp told Outside City Hall, “Opponents are going to the legal arguments because the other arguments of the advantages are so strong.”
Some have their doubts including the Seattle City Attorney
Outside City Hall talked with James Barth, an economist and Senior Fellow at the Milken Institute with an expertise on regulatory issues. He’s served as leader of an international team that advised the People’s Bank of China.
“Risk is much higher (for a municipal bank),” says Barth. He sees challenges with the city being on the hook for failed infrastructure projects. “If it is such a good deal, why aren’t private banks offering to do it (provide similar services)?” He is wary about the promises of easy profits for the city. “Make decisions on sound business practices, not on political beliefs,” says Barth. He also cited another effort when Walmart tried to acquire a bank but was blocked by the federal government.
In December, 2015 Seattle City Attorney advised caution when he wrote about his concerns with creation of a public bank. “The establishment of a bank entails inherent financial risks,” he said. “At a minimum the City, should it embark on such an endeavor, should strive to obtain clarity in the law and on the financial front before implementation.” In other words, get the state’s approval before putting too much energy into creation of a public city bank. Holmes quoted a 2012 report about by the Federal Deposit Corporation (FDIC) about community banks that said, “Most notably, banks that had high levels of C & D (construction and development) loans performed significantly worse than other banks.” That appears to imply a public bank would want to be careful in making loans for infrastructure projects.
The Bank of North Dakota works
Established in 1919 as a product of the populist movement, it stands alone as the nation’s only state run bank. But that hasn’t stopped activists from across the country seeking to emulate it elsewhere. With a goal to “deliver quality, sound financial services” for agriculture, commerce and industry, it’s deposits come from state government but does not include pension funds or state managed trusts.
Loans to local businesses and farms make up about 50 percent of the BND’s loans. The rest, working with local banks and credit unions, is invested in home mortgages for state residents. It’s only direct individual service goes to student loans. Earnings for 2017 are expected to be $140 million with assets of about $7.3 billion.
There must be some flexibility in where they direct their dollars because the BND did loan millions to state government to cover police costs at the Standing Rock protests of the Dakota Pipeline. Seattle Bank Coalition’s Repp suggested safeguards would be built in here to prevent that: “We don’t want it (a public bank) to be a politician’s tool.”
Other cities now also are looking into the idea
San Francisco, Oakland and Sante Fe are some of the cities exploring creating their own public banks. One idea from a San Francisco Supervisor (similar to Seattle’s Councilmembers), allow the public bank to be a place undocumented workers could cash their checks where now their only alternative is an expensive check cashing company. An Oakland councilmember wants to see a city bank assist low income and people of color in securing fair loans. A City of Sante Fe study predicted annual earnings by a public bank of $3.5 million, not bad for a city of only 68,000 people.
“Fortunately, an increasing number of people realize that there are systemic flaws…..that force banks to be wasteful, risky and fundamentally incapable of providing services to markets, such as cannabis banking or the under-and un-banked,” Armstrong says. ”We think this tide is turning to favor the creation of public banks.