New Law Will Allow Cities and Counties to Create Public Banks

Gov. Gavin Newsom signed legislation Wednesday allowing cities and counties in California to create public banks.

Just one other state, North Dakota, has a public bank, the Los Angeles Times notes. 

Public banks are intended to use public funds to let local jurisdictions provide capital at interest rates below those charged by commercial banks. The loans could be used for businesses, affordable housing, infrastructure, and municipal projects, among other things.

Proponents say public banks can pursue those projects and support local communities’ needs while being free of the pressure to obtain higher profits and shareholder returns faced by commercial banks. Support for public banks also has grown since the financial crisis a decade ago and since Wells Fargo & Co. was embroiled in a slew of customer-abuse scandals in recent years. Public banks are intended to use public funds to let local jurisdictions provide capital at interest rates below those charged by commercial banks. The loans could be used for businesses, affordable housing, infrastructure, and municipal projects, among other things.

There would be a process local governments have to follow. It includes establishing a corporation and then obtaining approval from the Federal Deposit Insurance Corp. to obtain deposit insurance.

The California Public Banking Alliance lobbied for the legislation and was able to get a number of cities and counties on board. The Valley Industry Commerce Association was opposed. Critics have warned about costs, confusion, and an invitation to public malfeasance.

Los Angeles’ Chief Legislative Analyst looked into the creation of a public bank for marijuana transactions in the City of L.A. last year and concluded it would be impractical. L.A. voters similarly rejected a measure that would have created a public bank in the city.


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