East Bay cities seek a public bank
Richmond, Berkeley and Oakland say move could pay off
>> When the shorting of the U.S. housing market contributed to a recession in the late 2000s, Americans received a harsh reminder of how many big, private banks worry more about maximizing profits than protecting their cash.
But one very different financial institution weathered the Great Recession better than others — just as it had the Great Depression almost a century earlier.
The Bank of North Dakota, the only public bank of its kind in the country, was founded in 1919 to better protect the state's farmers and ranchers from outside price hikes and market manipulation. By managing financial resources in-house by the state government, the bank was able to dole out more loans and mortgages that directly benefit the local communities and industries that fund it.
Since then, the Bank of North Dakota has reported decades of record returns. By 2021, profits exceeded $144 million and total assets — counting loans, securities and cash — hit a record $10 billion.
Despite those numbers, no other public bank has opened in the U.S. But now, elected officials in Richmond, Berkeley and Oakland are seeking to duplicate the North Dakota bank's success in the Bay Area with the Public Bank East Bay (PBEB), a cooperative venture that would allow local municipalities to invest taxpayer dollars closer to home, especially in areas where people face discriminatory banking practices, lack access to quality financial services and have missed out on opportunities to reach economic freedom.
The plan for the PBEB is modeled on mission-driven policies of racial equity, environmental regeneration and democracy. The bank's initial loans would focus on supporting affordable housing, small business, green energy and municipal finance.
Richmond City Councilmember Gayle McLaughlin, who was appointed last year to represent the city's interests alongside a 10-member governing board, has been pushing to explore financial options beyond private institutions like Bank of America and Wells Fargo, which have been ordered to pay almost $4 billion between them in the last year alone for violations such as charging egregious fees and fines, wrongfully foreclosing on homes and mishandling the distribution of government benefits during the pandemic.
“There is a great advantage in doing this because it becomes our bank — we're not putting the profits into the hands of the private banks,” McLaughlin said, adding that the PBEB's banking attorney, Gary Findley, has helped start more than 100 community banks in California in the last five years. “We're still in the process of getting things rolling, so it's going to take a couple more years before we really launch the bank.”
After months of studies and conversations, the Richmond City Council unanimously voted last week to ask city staff to start working out the terms of agreement for the business plan, alongside counterparts from the other two founding cities.
Once Richmond, Berkeley and Oakland pitch in $40 million to get operations up and running — with a little extra help from Alameda County — the bank is estimated to reach profitability within three years and manage a lending portfolio of over $250 million in the first 10 years of business, according to a viability study that Richmond reviewed in April.
George Quaye, a small business owner who sits on the PBEB's 10-member board, said the bank is finalizing plans to hire a CEO. An application to the state charter could be completed by this summer, and a business plan is expected to return to the Richmond City Council by winter 2023, he said.
After a year or more of review by the state and the Federal Deposit Insurance Corporation, PBEB could open its doors as soon as 2025, he said.
“Friends of the Public Bank East Bay have taken it upon themselves to fundraise the $2.4 million that will be needed to bootstrap this institution,” Quaye said, including the overhead needed to set up the bank's key staff and technical infrastructure. “We have a strong board that are community representatives and financial experts, as well, so we're hard at work.”
Similar to North Dakota, all lending through the PBEB to qualifying residents and small businesses would be managed through local credit unions, community banks and community development financial institutions. Cities that need to borrow money to fix potholes or tackle other projects can also dip into the PBEB's coffers while taking advantage of lower interest rates than more traditional options.
Local leaders are also hoping that a public bank would help them avoid administrative fees charged by private banks to manage their money, which could help lower the overall costs of government services and infrastructure projects.
And the timing may be ripe to pursue alternative financial options; public trust in banking hasn't fully recovered since markets began plummeting in 2007, according to a recent Gallup survey. The number of people who had a “great deal” or “quite a lot” of confidence in U.S. banks ranked lower than small businesses, the military, police, medical systems, the presidency, organized religion and the Supreme Court.
Outside of the U.S., public banks have blossomed for generations internationally; most notably, a 250-year-old German public banking system, the Sparkassen-Finanzgruppe, boasts more than 500 member entities.
But opening up a public bank has only been a viable option for cities and counties across the state since 2019 after Gov. Gavin Newsom signed the California Public Banking Act into law.
In October, the Los Angeles City Council tapped a consultant to write a business plan for its own public bank — four years after 55% of voters opposed a ballot measure to create safer ways to handle profits from marijuana sales without fearing federal backlash. San Francisco has also been inching closer to forming its own municipalrun bank, which a working group says could be opened up with $50 million in start-up funding.
That's one reason why, even at this early stage, Richmond Councilmember Claudia Jimenez is excited about the opportunity to try and find better ways to provide services and access to Richmond's lower-income residents.
Jimenez said that while trying to improve the city's long-troubled finances, Richmond had to shell out upwards of $60 million in fees to Wall Street banks while refinancing better rates for the bonds funding its pensions. She believes a public bank may help them avoid those types of expensive costs altogether.
“I think this is a good thing for us to explore and see how this can be a good financial benefit for the city of Richmond,” Jimenez said. “This is not a new idea; there have been several public banks that have demonstrated that they can really benefit the public and municipalities because their whole vision is about how to support communities and getting investments to those who normally cannot get a loan or support.”