Western Friend logo

Public Banking – Friendly Values

Nichoe Lichen
On Money (November 2015)
Healing the World

Quakers introduced public banking to the original colony of Pennsylvania, helping the colony prosper. North Dakota created its public bank in 1919, and is currently the only state to own its own bank. There are public banking efforts in more than thirty states, many of them in the west (Arizona, California, Oregon, Washington, Colorado, and my own State of New Mexico).

A public bank is a bank that is owned by the people through a representative government body – a city, county, state, or nation. Just like other banks, a public bank holds a bank charter and follows rules and regulations. Public banks differ from for-profit banks in that they are guided by missions that direct them to serve the public good, not generate profits for private shareholders. They are designed to manage public funds, not the deposits of individuals. In most places, advocates want a public bank not only because it makes sound financial sense, but also because it is a tool to grow a more resilient, just, and equitable economy.

Public funds belong in public banks. Rich or poor, we all pay taxes, fees, and fines. Added together, these become sizable amounts (our community’s cash) that can be put to work by a public bank.

Several years ago in Santa Fe, hundreds of our city’s residents were inspired by the lectures of Craig Barnes, a respected civil rights attorney and author. After Barnes spoke to us about the role that the global financial industry plays in inequality and injustice worldwide, we wanted to mobilize to create a better world, but we didn’t know what steps to take.  A few months later, public banking rose up to meet us on that path. The big challenge this presented to most of us was that we’d need to learn about the financial world extensively and about banking in particular.  However, grasped by the possibility of really providing practical help for a better world, we were somehow released to do what was needed. 

With eyes newly opened, we learned that hundreds of public banks are working throughout the world, managed according to many different models. The Bank of North Dakota, nearly a hundred years old, founded by poor, militant farmers (and still embraced by a very conservative state), has been enormously successful, performing better than Wall Street banks and shielding North Dakota from repeated economic downturns. Similarly, Oklahoma’s Bank2 does business on behalf of the Chickasaw Nation and provides tribal members and other minorities with banking services and access to affordable housing. Germany’s Sparkassen Savings Banks comprise hundreds of institutions, woven together in a supportive network that helps generate prosperity and security in virtually every little German town and village.

Many local governments would gladly deposit their public funds in local community banks or credit unions, knowing that these institutions tend to invest locally. Unfortunately, most of these institutions are small and not able meet the legal and regulatory requirements for managing large amounts of public funds. We can, however, support these local financial institutions individually – by putting our own money where our values are.

In the United States, most public funds from tribes, states, counties, cities, and towns are deposited in the big five mega-banks. Those big banks charge fees to manage the public’s money because global banks exist to make profits for their shareholders. When communities borrow from big banks for needed projects, they essentially pay interest to use their own money. For the most part, the mega-banks do their investing outside the U.S., where the profit margins are higher, and they often invest in projects that Friends would not support.

Friends have a long history of using our financial resources in ways that are consistent with our values. Quaker businesses became famous for charging a single, fair price from all customers for a given product. Banks founded by Quakers were established with the idea that financial resources should strengthen communities, providing them opportunities and security.

Quakers avoid gambling because for one to win, another must lose. The mega-banks, in contrast, embrace gambling as core to their profit-driven business model. It’s well established that big bank failures are cyclical. Global banks’ risky derivative and hedge-fund investments were key drivers of the global economic meltdown of 2008. Many communities continue to suffer as a consequence of that risky investing. Responsible investors will remain alert to the possibility that our personal money and our community’s money will be at risk the next time the big banks gamble and lose.

In many communities, the public debt burden has become debilitating. When economic times were better, communities borrowed regularly to pay for public services and projects. Today, such debt must be paid back with interest that typically increases a project’s cost by 40% to 50%. Just imagine what communities might do with that interest, if it could be invested back into the communities through public banks.

Friends value simplicity as a spiritual practice. We avoid going into debt to avoid the encumbrance that debt can place on a spirit-led life. In most parts of the country, the economy has not recovered from the latest recession, and many people are living frugally by necessity, not because simplicity is a guiding principle in their lives. As a result, the community cash that once came from taxes, fees, and fines has diminished, since community members have reduced their spending. Many communities are struggling to meet debt obligations that they made twenty years ago or earlier, when times were better.

In Santa Fe, we’ve learned that if we refinance our City’s bond debt through a public bank, the total amount of debt our city owes will be reduced and so will the size of our annual payments. An added benefit is that the public bank can also earn a little interest to reinvest in our community.

Communities with public banks have access to low-interest loans. As the loans are paid off, the interest helps grow the bank’s capacity to invest back into the public it serves.  A public bank can charge low interest because its mandate is to benefit the public, not to grow a big profit. The interest earned by a public bank becomes a new source of revenue for the community, revenue that does not come from taxes, fees, or fines.

A public bank is a public servant. It is managed by banking professionals who earn public servants’ wages – no finder’s fees or bonuses.  A public bank is required to be transparent, truthful, and accountable to the public about the ways it manages the public’s funds. It is designed to follow the public’s mission, independent of political meddling and favoritism.

The community’s cash is safer in a public bank than a mega-bank. Rather than entrusting public funds to a bank that may gamble with their deposits, a public bank makes conservative investments in local projects and services, ones that are well supported by the community.

As the Bank of North Dakota demonstrates, a public bank can also partner with other local financial institutions to help strengthen them and assist them in providing lower-interest loans and more favorable terms for projects that benefit the community, like affordable housing and growing small businesses (the job creators in our communities). Public banks might one day provide low-cost student loans, so that graduates are not mired in debt for much of their professional lives. Public banks could also respond quickly to natural disasters.

A public bank does not have to be big to be a wonderful service to its community. Whether it serves a nation, state, county, or town, a public bank enriches the community that supports it.

You can learn more about public banking or find a contact near you at PublicBankingInstitute.org. You can follow Santa Fe’s progress toward a public bank at BankingOnNewMexico.org. Finally, you can find a local bank or credit union that reflects your values at banklocal.info.  ~~~

Nichoe Lichen attends Quaker House Santa Fe Meeting (IMYM). She is a board member of the Public Banking Institute and serves on the Executive Committee and Brass Tacks Team (Public Banking Facts that Stick) for WeArePeopleHere! - BankingOnNewMexico.

public banks Economics Cooperation community

Return to "On Money" issue