Public banking is banking operated in the public interest, through institutions owned by the people through their representative governments. Public banks can exist at all levels, from local to state to national or even international. Any governmental body which can meet local banking requirements may, theoretically, create such a financial institution.
Public banking is distinguished from private banking in that its mandate begins with the public’s interest. Privately-owned banks, by contrast, have shareholders who generally seek short-term profits as their highest priority. Public banks are able to reduce taxes within their jurisdictions, because their profits are returned to the general fund of the public entity. The costs of public projects undertaken by governmental bodies are also greatly reduced, because public banks do not need to charge interest to themselves. Eliminating interest has been shown to reduce the cost of such projects, on average, by 50%.
Today, cities and states put their money in Wall Street banks, allowing those banks to leverage our public funds in order to dominate the financialized speculative economy rather than reinvesting them in our communities. At the same time, cities and states borrow money from Wall Street institutions and bondholders at high interest rates and pay large fees to keep money in their banks. This is not a cost-effective way to do business. Cities and states could be keeping their public dollars and leveraging them for their own community needs.
With city and state-owned banks, we cut out Wall Street middlemen. Our community’s cash stays home to benefit us! Bank fees are eliminated, interest costs drop, and public bank profits are reinvested into our communities.
Public banks can help us create the communities we want. We want parks, good roads, safe bridges, clean energy, and housing we can afford. We want lower interest rates for local small business loans, local control of our tax dollars, investment in our local communities, and ethical and transparent financial institutions managing our public funds. Public banks can be the financial engine that makes this happen for our communities.
- Are owned by the people of a state, city, community, or nation;
- Serve as the depository for local government funds (city or state taxes, fees, etc.);
- Are required to benefit the public by serving local community needs;
- Can save state and local governments millions or even billions of dollars, by cutting out middlemen and private shareholders, eliminating fees, and financing projects at lower interest rates;
- Reinvest bank profits into the community, providing a new source of income for cities and states and a source of funding for projects such as infrastructure, renewable energy and affordable housing;
- Are run, not by politicians, but by qualified bankers serving a public mission;
- Provide accountability and transparency to the public for bank decisions, avoiding the risks of Wall Street’s speculative gambling;
- Create new jobs and spur economic growth by supporting local small businesses;
- Partner with and support rather than competing with local community banks;
- Can lend during times of stress and crisis, helping to sustain a healthy local economy.
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The Public Banking Institute was formed in January 2011 and is a national educational non-profit organization working to achieve the implementation of Public Banking at all levels of the American economy and government: local, regional, state, and national. This is not a new or radical idea. On the contrary, it is a solid, time-tested model with abundant successful examples of Public Banking around the world, including state and national banks. But currently there is only one such bank (the Bank of North Dakota) in the United States.
Our current private banking system has presided over the greatest concentration of wealth in human history, while the vast majority of America and the world has endured stagnant wages, declining wealth, and recurring recessions. In contrast, Public Banks empower small businesses, students, homeowners, city and state governments, and community banks to prosper and thrive by banking for the common good over the long term, and making low-cost credit available where it is needed in the real economy.