City takes initial step for creation of public bank
The long-running effort to create a public municipal bank in San Francisco inched forward, officials announced Monday, after an official group sketching out how the bank would be formed and how it would operate submitted a draft plan to federal and state financial regulators.
The plan, drafted by an advisory committee called the Reinvestment Working Group, offered guidelines for an upfront capitalization of $50 million to create the bank, with the intent of freeing up loans to city residents and business concerns for affordable housing, small businesses and green investments. The draft proposal, which moved through the Board of Supervisors’ Rules Committee on Monday, calls for public input at a variety of hearings over the next three months.
Public banks are financial institutions set up and operated by a local government. Supporters say that public banks are better able to invest in localized priorities like low-income housing, public infrastructure and small businesses compared to more traditional commercial banks, which emphasize creating value for their shareholders and may shy away from projects with lower profit margins.
But actually opening a public bank is still years away in San Francisco, as the city hopes to convince federal and state regulators that officials can operate a bank effectively.
“As we continue to chart a path to economic recovery, we must include reinvestment, and a public bank is one of the best ways to ensure that our city dollars are used to reverse inequities, not perpetuate them,” said Supervisor Dean Preston, who drafted the ordinance to create the working group. “The draft plans are a huge step forward in turning the public bank concept into a reality.”
The dream of a public bank came into focus in 2019 after Gov. Gavin Newsom signed a law allowing local governments to apply for banking licenses for the first time. The number of these banks was capped at 10 statewide.
“Our public money should serve a public purpose and our local communities — not lining the pockets of Wall Street investors,” said then-San Francisco Assembly Member David Chiu, who sponsored the legislation. Chiu is now the San Francisco city attorney.
Terms of the draft plan call for $188 million to be available in financing for the bank, which does not yet have a name. The working title is San Francisco Public Bank, and if it goes forward, it will be the first city-owned bank in the country. That historic opening, which may include brick-and-mortar locations, is at least 3-5 years away.
“As the Reinvestment Working Group discovered in this process, the slow small business recovery from COVID and the enduring grips of the affordable housing crisis and the climate crisis have shown that San Franciscans and community development financial institutions would greatly benefit from low-cost loans provided by a public bank,” said Jackie Fielder of the San Francisco Public Bank Coalition.
The first step toward the bank is establishment of a Municipal Finance Corporation, which will allow the city to start operation and issue loans without approval of the Federal Deposit Insurance Corp. That federal approval will ultimately be required to transition to a public bank, as set forth in the new state law. The goal of the working group is to introduce the Municipal Finance Corporation for approval by the Board of Supervisors by the end of the year.