The bill SB 528, introduced Feb 21 by CA State Senator Ben Hueso, would convert the California I-Bank — a state revolving fund with a 20 year history — into a true depository bank with a reserve account at the Federal Reserve.
PBI Chair Ellen Brown commented about the bill’s approach to convert the I-Bank:
“Adding a bank charter to the California I-Bank is a smart, commonsense plan. The I-Bank already does half the work of a bank: it issues loans in a market it understands well. After it obtains a bank charter it can do the other half: accept public funds as deposits and use the magic of leveraging its capital to expand the below-market loans for local infrastructure and development. Loans to municipalities and public entities have a very low risk of default. It will have low operational costs because there is no need for branches, tellers, or marketing.”
Converting the I-Bank to a true depository bank would allow it to receive deposits, manage accounts, and issue loans for its municipal clients. The bank created by SB 528 would not provide direct retail services to individuals but would continue to provide highly effective loan guarantees from its Small Business Finance Center. Importantly the reserve account of the new depository bank would not be subject to the risk of bail-ins (loss of depositor funds) in the event of another banking crisis. Public funds will be safer, unlike the public funds that are currently deposited in privately owned banks.
Consumer advocate Ralph Nader said:
“This is a first step in ending muni bondage by taking public control of financing. Interest payments on municipal loans will be half those of private banks, and will be returned to the public, rather than transferred to the wealthiest 2% seeking to avoid personal income tax. Munis are a residual form of regressive taxation. Freeing California’s public monies from self-serving mismanagement by Wall Street fee-gougers is long overdue.”
The transformation of the IBank into a true bank was sponsored by the Democracy Collaborative of Washington, DC, with California efforts led by Dick Mazess of Santa Barbara.
The bill’s introduction followed a positive joint informational hearing on public banking held Feb 4 by the Banking and Finance & Local Government Committees. Sushil Jacob from the California Public Banking Alliance as well as Dick Mazess submitted formal testimonies for the hearing (read them here and here), while members of Public Bank East Bay and Public Bank Santa Rosa came to give public testimony.
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