US public bank boom aiming to stay local and fair

By Carey L Biron / Washington

April Fenall wants to electrify and modernize her fleet of California delivery vehicles, but she thinks her company with a conscience is too small to interest her big bank.
“It’s almost like you can see them looking at your bank account and grading you,” Fenall, 50, told the Thomson Reuters Foundation, speaking of bankers she’s approached.
“I immediately feel that I do not fit the criteria.”
And amid the turmoil of the past few years, she’s also not sure she’s interested in working with them.
“Small businesses like me feel beaten down,” said Fenall, who runs Piikup, based in Oakland, northern California.
“We don’t need another loan. We don’t need debt financing. We need low interest loans.
Thus, a new proposal in the field caught his eye: a public bank, aimed at filling the gaps left by traditional financial institutions which, according to some, often avoid micro-enterprises or minority companies.
“Loans under $50,000 just aren’t attractive to community banks or local financial institutions…it’s not worth their time and energy,” said Susan Harman, who sits on the board of directors. of the proposed Public Bank East Bay.
“This is a huge gap in the market that we hope to fill in partnership with local financial institutions.”
State-owned banks – usually owned and operated by a government entity, often in the public interest – are common in many countries, including Germany, India, China and beyond.
This is not the case in the United States, which for decades had only one: the state-run Bank of North Dakota.
American Samoa created a second in 2018.
This image is changing – and at the pace.
Last year, 18 public banking bills were introduced across the country, according to advocacy group the Public Banking Institute.
“Money is a public service, and banking should also be a public service. Right now it’s a private public service,” said Walt McRee, president emeritus of the Public Banking Institute.
“It’s about taking back control of our money.”
Proponents say public banks ensure wealth stays local and meets neighborhood needs.
Their potential increase comes as the number of small private U.S. local banks has fallen from nearly 14,500 in the 1980s to just 4,200 last year, according to federal data.
Public banks can also reduce interest payments for local governments and free up money for future investments, McRee said.
Globally, these banks have shown real stability in crises, including the pandemic, said Thomas Marois, a political economist at the University of London.
While private banks are “withholding investment in the midst of a crisis,” he said, during the pandemic, “public banks have almost universally increased lending, channeling it into health care (small businesses), protecting jobs and more.
Today, there are more than 900 public banks around the world, holding more than $49 billion in assets, he said.
While their growth occurred in particular after the Second World War, a major revival of interest has emerged in recent years following the 2008-2009 recession, as well as a new priority for financing sustainable development and upheavals caused by Covid-19.
“People have suddenly realized that these are pretty fundamental elements of public stability and will be key to Covid recovery and future sustainability,” Marois said.
The United States is leading this “global renaissance”, he said, thanks in part to a renewed clamor for racial justice.
A U.S. Treasury spokesman declined to say whether he is following the increased proposals from state-owned banks or his stance on the issue.
The American Bankers Association, however, has long warned of the dangers of state ownership in the financial sector.
“History has shown that public banks create more problems than they solve and almost always fail, usually due to political interference leading to risky lending or operating with too little capital,” Blair Bernstein said. , ABA spokesperson, in an email.
“The creation of a public bank, when there is no demonstrated need, would expose taxpayers to substantial risk and create an unequal competitive playing field for private sector financial institutions.”
A widely followed effort in Philadelphia to create a proto-public bank was rejected by the mayor last month.
Mayor’s spokesman Kevin Lessard said the city’s existing agencies were well able to help disadvantaged local businesses, so there was no need to create new ones for that purpose.
Yet changemakers say the evidence points to the opposite.
“We have a 25% poverty rate in Philadelphia, and only 6% of businesses are owned by African Americans…although 43% of the population is African American,” said Derek Green, a city councilman who led effort.
“It tells me that we have small businesses that are entrepreneurs but not able to grow,” he said, citing difficulties in accessing credit.
Overturning standards is also a key goal for a $200 million Massachusetts statewide proposal, where supporters hope to introduce a new bill in January.
Only 4% of business loans in the state go to women-owned businesses, said Ruth Caplan, co-chair of the Massachusetts Public Banking Campaign, while the pre-pandemic gap in access to capital by business owners of color was at least $574 million per year.
“We are also concerned about the farmers. They need low-cost capital to acquire farmland, and they can’t get the loans they need,” Caplan said.
The leading US state on the matter is California, which passed legislation in 2019 to facilitate such projects.
In San Francisco, there is a push for a new public bank that would support local entrepreneurs in times of need.
“We’re trying to figure out how to reinvest in our local economy in a way that makes sure small businesses don’t close in times of financial crisis,” said Jackie Fielder, co-founder of the San Francisco Public Bank coalition.
A business plan is underway, with additional focus on how best to fund the city’s climate goals and make housing affordable.
This last goal deeply affects Reina Trello, who in 2018 was evicted along with her two children and several relatives after trying to refinance their home following the 2008 recession.
“We had one of those horrible loans and fought our eviction for seven years,” said Trello, 40, a community organizer in San Francisco.
A community-based financial institution might do things differently, she says.
“That’s the most important thing the public bank can do: bring decisions to the local level. I can tell you what my neighborhood needs.
—Thomson Reuters Foundation

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