Bill would allow cities to apply to establish public banks, prioritizing local community needs over Wall Street profits
We are extremely excited to announce Assembly Bill 857. (Don’t search on the bill number yet; the legislative staff hasn’t updated the records.) We were at the well-attended press conference, along with several other Bay Area progressive groups.
Assemblymember David Chiu (D-San Francisco)’s press release tells you all you need to know:
SAN FRANCISCO—Assemblymembers David Chiu (D-San Francisco) and Miguel Santiago (D-Los Angeles) introduced a bill today to allow local jurisdictions to create public banks through a charter process. Assembly Bill 857 would open a pathway towards creating public banks in California and ensure the public’s money benefits local communities rather than the largest financial institutions.
“The public’s money should serve a public purpose, not line the pockets of Wall Street investors,” said Assemblymember Chiu. “Time and time again, we have seen big banks invest billions of dollars of our money in institutions most Californians are opposed to. This legislation allows us to take a first step towards ensuring the public’s money is reinvested in our local communities.”
“It’s pretty obvious that the Wall Street system of wealth distribution has created an income inequality crisis,” said Assemblymember Santiago. “And nowhere is that more visible than right here in my district, where luxury condos loom over Skid Row. Instead of making rich men even richer, our resources should be invested in community development: parks and green spaces, free community college, new schools, smooth roads, and cleaner air. With AB 857 we’re laying the groundwork for a financial system that will give Californians access to capital they can afford, and empower communities to invest in projects that improve everyone’s quality of life.”
Public banks are financial institutions owned by one or more public entities, such as a city or county. Because public banks do not have to prioritize shareholder profits, they are able to invest, lend or provide banking services at below market rates.
There are currently no public banking options in California. Local governments are typically only able to hold their assets in large privately-owned commercial banks because money over $250,000 cannot be FDIC-insured at a credit union or community bank. While private banks are usually the only option for local governments, especially those with larger budgets, large fees and high interest rates are frequently charged.
Private banks do not have strong incentives to consider the broader needs of the communities they serve. This has resulted in a string of high-profile reports of commercial banks investing in endeavors and institutions–oil pipelines, private prisons, immigration detention centers, gun manufacturing, and companies with exploitative labor practices–that are not in line with the values of most Californians.
Public banks would be able to consider the needs of the community they serve and offer services that traditional banks view as less profitable or are reluctant to provide. They could use long-term interest to invest in activities that benefit the broader public, such as funding affordable housing, giving small business loans, or financing infrastructure projects.
Should a local government decide to apply for a charter to create a public bank under AB 857, the approval process would be similar to the process for credit union approval in California. They would need to create a viable business plan and secure insurance approved by the Commissioner of the Department of Business Oversight.
Unlike other banks, public banks would be to declare a special purpose or special public benefit — such as strengthening local economies, supporting affordable housing development, or providing services to the un- or under-banked — as defined by state law with specific reporting requirements. The bill also encourages public banks to form partnerships with local community banks or credit unions in order to provide retail banking services.
The California Public Banking Alliance is sponsoring AB 857.
“California has a reputation of producing innovative solutions for some of the most complex issues,” said Board of Equalization Chair Malia Cohen. “This banking system creates a tangible opportunity to focus taxpayers’ dollars on local issues that residents care about.”
“The measure of success should not be how many profits are produced for shareholders,” said Supervisor Vallie Brown. “We should be measuring success by how much we have improved the lives of all San Franciscans. With the establishment of a public bank in San Francisco we will be able to do more to invest in our communities and more to break down wealth disparities that divide us.”
AB 857 is expected to be heard in the Assembly Banking and Finance Committee in March or April.
Assemblymember David Chiu (D–San Francisco) is the Chair of the Housing & Community Development Committee of the California State Assembly. He represents the 17th Assembly District, which encompasses eastern San Francisco.