We have a list of frequently asked questions and answers on public banking. Click a question below to view the answer.

a. The bank’s deposits will come from the city’s existing deposits. The city of LA already has billions of dollars in checking and short term investment accounts at commercial banks, where it earns next to zero interest (and costs fees to manage!) A public bank would house these deposits instead, putting them to work for the people of LA.

b. The bank’s equity, or reserve, would come from a city ordinance or appropriation, or from a voter initiative and bond, or from excess pools of interest earned by existing city budget items. The bank would actually return money to the city, lessening the burden of taxes and increasing city budgets, and it would save the city money in interest, fees, and losses incurred by speculative Wall Street investments.

c. Bonds. The city could still sell bonds on the existing market if those rates are the cheapest. The public bank would actually seek to participate in the early series of municipal bonds (year 1 - 5) to shore up their portfolio with high grade collateral and to maintain liquidity. The bank could be designed to have a bond broker department that directly serves its municipality and charges drastically less for origination of bonds, to make access to credit a more mundane city function (which it already should be).

The bank could also provide alternative credit options to a city at far below the bond market rate (4-6% by borrowing at the federal funds rate (0.4%) and making preferential loans directly to city projects. This is especially advantageous on infrastructure improvements like transportation, power and trash which have revenue streams that can pay down loans at a predictable rate.

The bank would also provide fiscally and socially responsible investment options to city investment and pension funds to help them balance their riskier investments while still earning a strong return on investment.

d. Crowdfunding/Green Bay Packer Model. Individuals could become founders of the PBLA by distributing its equity share to regular people. Like the Green Bay Packers model, contributions are donations, so the city would continue to own 100% of equity. The size of the equity base of the bank would determine the size of its lending portfolio.

Non-voting shares of the public bank could be sold at its founding, with a strict limit on the number of shares available per natural person residing in the region. This could guarantee a low-cost buy-in for all LA residents, it would prevent a rush on shares by large corporations and investors, and it would create a sense of public ownership above and beyond the city’s sole executive shareholder status. Each share could even represent a citizen account/certificate of deposit at the bank which could receive limited dividends and interest, further expanding the lending capacity of the bank while setting aside a small investment for the future of every individual Angeleno.

This can be ascertained more accurately by a well-researched business plan that can outline different alternative given various assumptions. The major milestone would be for the business plan to be prepared to give the answer of where the money will come from and what the costs will be. TI will depend on how many loans we have capacity for lending in at first and how many deposits there are.

Credit card processing, account invoices, adjustments, fees, accounts payable.

Any sound business plan will require focus and detail on the complicated enterprise of running a bank. This means a feasible and trustworthy bank will be sure to ‘get it right the first time.’ This means starting with what’s most important, prove competence and capacity for more, and then add services as the demand dictates.

The most basic function the bank can provide is checking, credit card processing, and repo (liquidity) services for the city treasury. The public bank would work closely with city departments and agencies to smoothly integrate their accounts payable, receivable, merchant accounts, checking, wire, ACH and payroll services. It would work with the Office of Finance to facilitate the collection of taxes and the accounting and reporting of same.

Once the bank is managing deposits, it can begin to make loans and purchase interest-bearing assets. The bank would construct a portfolio of loans and investments according to its investing priorities and guidelines determined at its founding, and according to the direction off the Board of Governors. Loans made by the bank could be infrastructure loans made to the city, or small business loans made in partnership with community banks. Special loans could be made for important city priorities, such as for affordable housing or clean energy upgrades to city property.

The bank would likely serve as a ‘banker’s bank’ at first, providing liquidity and security for community banks looking for a powerful local partner to help face down large multinational financial institutions. It could provide clearing services and interbank liquidity.

After the bank has proven it can hold city deposits and earn a return on its loan portfolio while focusing on regional and socially beneficially investments, it can expand its offerings. By partnering with community banks, the public bank could expand access to banking services by providing extra security for partner banks, lowering the cost of banking for everyone. The public bank could serve business in the cannabis industry which are shut out of commercial banking. It could provide cash banking services to immigrants through utility bills and other novel and low cost means.

The City would collect and store revenue in bank accounts as deposits, the city would continue to perform all its regular activities. Merchant services would be brought in-house. The City can manage it at a much lower cost than commercial banks.

Except to build up its reserve at the very beginning, a public bank would not use tax dollars to fund its activities. Loans would be made by the bank and backed up by city deposits, which would be properly insured or guaranteed, and would not be at risk.

The public bank would start as a banker’s bank. The City of Los Angeles would be the primary customer, lending to growth industries, start-ups etc. The bank would be in partnership with local community banks. There would be underwriting guidelines as to what kind of loans the bank makes.

The bank itself would initiate its own programs to follow the economic development plans of the city. The German model does the same thing, they adhere to the cities goals in their lending programs even though they’re independent. For example: housing lending (especially affordable housing), enterprise lending (small and medium size businesses), and infrastructure. We’d recycle the money back into city accounts.

An executive of bank management would run all of the loan policy with an arms length relationship with city finance. The loans are not made by the city, the loans are made by the bank. The loan programs are developed and built within the bank, the same way they would operate under a private or commercial bank. It would have a mandate as described by state license and the charter. The public bank would be supervised by elected officials and community members to help guide policies and change them from year to year. A bank executive, a credit department and a bond officer would manage these issuances for the bank itself. If the city wants to issue a bond, they could do that as they normally would through a private commercial bank.

We could start with infrastructure. The internal financing of bonds will reduce costs associated with public finance. In the public bank license draft there is a prohibition on offering commercial credit directly to businesses. Commercial loans would be done in partnership with community banks which gets away from risk of doing business loans that shouldn’t be done.

The loan portfolio will fund sectors of the economy that were previously undervalued by Wall St. bankers to stimulate the local economy resulting in higher tax revenue for the city, and its scope would be limited to the region, making us more competitive as a lender in that area.

The public bank license would give statutory authority to address these issues. We would create this statute which would underpin how we start the public bank and address the challenges.

No. We want to duplicate the commercial lending model of the Bank of North Dakota, where all commercial lending is made through a network of community banks. This is a major check on the system. The BND simply provides extra credit, acts as the dealmaker, and services the loan. The customer remains that of the community bank or credit union. This services actually helps the local banks and credit unions.

In other words, a municipal public bank would keep money circulating within the community through community banks and credit unions. The only banks it takes away money from are the Wall Street leviathans.

Los Angeles currently faces a housing crisis with more than 400,000 households living in substandard housing conditions. Many Angelenos are forced to pay over 50 percent of their paycheck towards rent and utilities. L.A. has the highest national homelessness with 58,000 people living in the streets in 2017. It has been estimated that a 5% increase in rent would leave an additional 2,000 people homeless. Statewide in California, the median home price is more than 2.5 times higher than the median national home.

A public bank would enable the city to loan money for housing development at below market interest rates. Private housing developers operate purely on a profit-motive and have no incentive to build affordable housing. A city-owned bank can extend the credit lines of community banks and credit unions to offer loans to low-income residents and help bankroll low-income housing, fund community land trusts, develop new short-term housing facilities, and rehousing programs to address solutions for the increasing homeless population.

A city-owned bank could address the environmental crisis and reduce the impacts of climate change by financing clean energy infrastructure, increasing renewable-energy lending, and incorporating sustainability investment goals into the City’s redevelopment plan. Sparkasse, a network of 400 regional public banks in Germany, has been implemental in Germany’s green energy transformation. According to Wolfram Morales, Chief Economist of Sparkasse, 73 percent of investment in renewable energy came from the German public bank sector. Renewable energy accounts for 41 percent of energy production and consumption in Germany. The Sparkasse banks are able to offer interest rates as low as 1 percent on loans, considerably lower than commercial bank rates.

Costa Rico’s worker-owned Banco Popular, is another example of publicly-controlled banks funding environmentally friendly projects. The bank has financed sustainable water supply systems, residential solar energy panels, hydroelectric energy generation, and energy-efficiency retrofitting. In addition to promoting energy democracy, Banco Popular is also socially driven, working with co-ops and public institutions, as well as the unbanked and underbanked populations.

The Bank of North Dakota is a nearly century old public bank founded in 1919. The BND state-owned bank is more profitable than Goldman Sachs with a higher credit score than JPMorgan Chase. The BND has returned record profits for the last 12 years with a nearly 17% return of investment. It withstood the economic crash of 2008 because it does not engage in risky or unsound investments and lending practices. The Bank of North Dakota makes low interest loans to students, existing small businesses and start-ups. It partners with private banks to provide a secondary market for mortgages and supports local governments by buying municipal bonds.

The City of Santa Fe, New Mexico has completed a feasibility study and concluded that it will be feasible. The City of Oakland, CA has recently approved a joint feasibility study with the County of Alameda and the City of Berkeley. The City of Seattle has an active municipal public bank campaign. Democratic and Republican lawmakers in the State of Michigan have filed a bi-partisan bill to create a State Public Bank. As multiple municipalities and regions in California begin establishing regional public banks, they will begin to grow out a California regional public banking model akin to Germany’s Sparkassen. The State of California is also likely to adopt its own public bank as well, as State Treasurer John Chiang and others have openly expressed support for its development.

Phil Murphy, a former Goldman Sachs banker, and now Governor of New Jersey is strongly in favor of the public bank. He prioritizes the loan portfolio with first consolidating student loans, second is small business lending, and third low-end infrastructure. In January 2018, New Jersey State Senators Nia Gill and Richard Codey introduced Governor Murphy’s State Bank of New Jersey Act.

The public bank will be constructed to provide competent and financially responsible banking services, while doing so within a socially responsible framework and a mission of community development. All these pillars will be addressed by the proper check and balance mechanisms built into the bank, including a board of directors that reflect social and environmental needs, financial expertise and community development, modelled after Germany’s tripartite board model.

As a matter of protocol and structure, the bank will be designed to hire bankers based on strict resume requirements, who will then be beholden to the ethical guidelines of the bank charter and mission to serve as a public servant, accountable to the people, with full transparency. In this way, competence will be sought after and rewarded, unlike Wall St.’s history of rewarding incompetence by offering gargantuan bonuses to perpetrators of the bank collapse.

We can use two existing workable models as inspiration for the Bank of Los Angeles:

a) The Bank of North Dakota. The board for Bank of North Dakota has three elected representatives, the governor attorney general and Secretary of Agriculture. They set policy for public service interests. There is an advisory board of 10 to 12 bankers who serve in an advisory capacity. BND also has a chartered mission to serve the people.

b) Sparkassen of Germany. There 3 boards with their own separate elections. One third is elected is a regional parliament, One third is made up of employees who elect representatives One third is made up of people of the public who can apply to be elected who run for 4 years, and presents CV’s to prove economic expertise, who are then approved by banking supervisory authority. It will be up to Los Angeles’ elected representatives, banking experts and the People to provide their input on what structure will be most conducive to financial soundness while being sensitive to the local needs of the city and guaranteeing the upholding of the social and environmental responsibility mission.

No. As stated by Ellen Brown in her article, The Public Bank Option - Safer, Local and Half the Cost: "The Los Angeles Community Development Bank that closed in 2003 was not a bank; it was a loan fund, and it was designed to fail. It was allowed to lend only to businesses that had been turned down by other banks; in other words, they were bad credit risks. The Bank of North Dakota (BND), our one and only publicly owned depository bank, is extremely profitable – more profitable than Goldman Sachs and JP Morgan Chase, according to the Wall Street Journal – and it does not make bad loans. It is very risk-averse, lends conservatively, does not gamble in derivatives or put deposits at risk. It is able to lend at lower than market rates because its costs are very low. It does not pay bonuses or commissions, has no high paid executives, and has no shareholders bleeding off profits in the form of dividends. It does not have branches. It does not compete but partners with local banks, which act as the front office dealing with customers.

The BND does make loans that community banks are unable to service, but it is not because the borrowers are bad credit risks. It is because either the loans are too big for the smaller banks like the BND, would be run by seasoned bankers fully mindful of credit risk, interest rate risk and quality of assets. Public sector banks, while rare in the US, are common in other countries; and recent studies have shown that like the BND, they are actually more profitable, safer, less corrupt, and more accountable than private banks."

While it would indeed be problematic for a public bank to squander funds, make bad loans, or operate inefficiently, there is empirical evidence that a public sector bank can be profitable and efficient, as well as plenty of evidence for inefficiencies in private sector banking.

Two existing examples we are inspired to model the municipal public bank system on are the Bank of North Dakota and the Sparkasse public banking system of Germany. Both are profitable and well managed, while simultaneously serving their communities and providing competitive rates.

In comparison, the city currently banks with firms guilty of collusion, rigging, defrauding customers, predatory lending, money laundering, racketeering, graft and a host of other offenses that dramatically culminated in the fiasco of the financial crisis when ‘too big to fail’ oligarchy of banks took hundreds of billions of dollars in public sector money. Subsequently, not only were no perpetrators of the financial crimes punished, vast bonuses were paid out to bank executives. This is the opposite of “efficiency.”

Finally, the profitability, incorruptibility, ethicality and financial soundness are all very serious considerations in the development of the bank. There will be measures taken to ensure these concerns are met, by establishing the means to ensure the bank is fully transparent, that all bankers are public servants accountable to the people, that the bank has a board of directors that reflects community needs as well as financial expertise, and a culture of meritocracy and intelligent financial management.