Public Banking Around the Nation

“Hundreds of job-creating projects are still on hold because Michigan businesses and entrepreneurs cannot get bank financing. We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs.”

So says Virg Bernero, mayor of Michigan’s capitol city of Lansing and a leading Democratic candidate for governor.  Bernero proposes that Michigan open a state-owned bank, which could protect consumers by making low-interest loans to those most in need, including students and small businesses.  It could also help community banks, by buying mortgages off their books and working with them to fund development projects.  Bernero’s campaign spokesman Jamaine Dickens says the Bank is not a partisan issue but is a “common-sense approach to a financial crisis that Michigan is facing.”

Bernero joins a growing list of candidates proposing this sensible solution to the states’ fiscal ills.  Local economies have collapsed because of the Wall Street credit freeze.  To reinvigorate local business, Main Street needs a heavy infusion of credit; and publicly-owned banks could fill that need.

Candidates in seven states are running on a state-bank platform, in Florida, Oregon, Illinois, California, Washington State, Vermont and Idaho, including three Democrats, two Greens, one Republican and one Independent.

Vermont’s Gaelan Brown, says, “Washington DC has lost all moral authority over Vermont.”  Among other proposals, he maintains that “Vermont should explore creating a State-owned bank that would work with private VT-based banks, to insulate VT from Wall Street corruption, and to increase investment capital for VT businesses, modeled after the very successful State-owned Bank of North Dakota..."

Below we provide a summary of activities in several states where public banking is under discussion.

Illinois

Massachussetts

Michigan

Washington

The Community Bank of Illinois

A third bill is on its way through the legislative process in Illinois.  Introduced by Representative Mary Flowers, the Community Bank of Illinois Act would establish a state bank with the express purpose of boosting agriculture, commerce and industry. State funds and money held by penal, educational, and industrial institutions owned by the state would be deposited in the bank and would serve as reserves for loans. The bank could also serve as a clearinghouse for other banks, including handling domestic and foreign exchange; and it could buy property under Eminent Domain. All deposits would be guaranteed with the assets of the state. The Bank would be managed and controlled by the Department of Financial and Professional Regulation, with input from an advisory board representing private banking and public interests.

An amendment to the initial bill would enable the Community Bank of Illinois to make loans directly to the state’s General Revenue Fund, helping the state to cope with its current budget challenges.

A Massachusetts-owned Bank

The Associated Press reported on March 12 that a jobs bill sponsored by Massachusetts Senate President Therese Murray includes a call to study a Massachusetts-owned bank.  Murray is floating the idea of a state-owned bank to spur job creation and free up lending to Massachusetts businesses.  She told a business group that a state-owned bank has worked in North Dakota, helping to insulate that state from the worst of the recession while also keeping its foreclosure rate down.

The Michigan Development Bank

The Michigan bill has gotten the most press.  Introduced into the legislature earlier this month, it mirrors Bernero’s state bank idea.  The bill’s stated aim is to “keep Michigan’s money in Michigan” by putting tax dollars into a proposed “Michigan Development Bank”.  Michigan has been hit hard by the nation’s economic downturn, with an official unemployment rate of 14%.  The Michigan Development Bank would function like a traditional bank but would focus on economic development rather than profit.

“Investing in the state’s economy is the greatest way to create jobs, and this proposal will provide small businesses and entrepreneurs the funding they need to invest and grow,” said Senator Gretchen Whitmer (D-East Lansing). “Our economy has stagnated due in part to stale thinking in Lansing, and this is just the type of innovative idea we need to create real economic change, using our own money to rebuild the state.”

In a press release issued on March 9, Senate Democrats suggested that Michigan sell voter-approved bonds to jump start the Development Bank. With an initial capitalization of $150 million, they estimate the bank could lend up to $1 billion to small businesses, students and farmers, and offer low-interest credit cards to consumers.

“Michigan’s economy has been suffering, and working families in the state have had difficulty keeping up with credit card bills, college tuition prices and mortgage payments,” said Senate Democratic Leader Mike Prusi (D-Ishpeming). “Establishing the Michigan Development Bank will keep our hard-earned dollars right here in the state to invest in small business, create good-paying jobs to get people back to work, and help protect the middle class.”

Senator Hansen Clarke (D-Detroit) added, “With the current state of our economy, every dollar counts, yet we’re depositing our money in other people’s pockets by investing in big corporate banks without seeing much lending in return.  It’s time for the Mitten State to lend itself a helping hand and establish a bank that is willing to invest in our small businesses and offer the financial support necessary to see job growth.”

Gene Taliercio, one of six Republicans and two Democrats seeking the 12th District state Senate seat in upcoming elections, has also put his weight behind the Michigan Development Bank. >> More

The State Bank of Washington

A similar bill was introduced to the Washington State legislature on February 1.  The bill, HB 3162, has generated so much interest that Steve Kirby, chair of the Financial Institutions and Insurance Committee, has scheduled a special work session on it.

According to John Nichols in The Nation, the State Bank of Washington was formally proposed by House finance committee vice chair Bob Hasegawa, a Seattle Democrat.  “Imagine financing student aid, infrastructure, industry and community development,” said Hasegawa.  “Imagine providing access to capital for small businesses, or otherwise leveraging our resources instead of having to do it with tax incentives.  Imagine keeping our resources local instead of exporting them as profits, never to be seen again—that’s what this bank could do.”

A nonpartisan analysis of the bill prepared for the state legislature said that the bank would be the depository for all state funds and the funds of state institutions, and that these deposits would be guaranteed by the state. The bank would be run by a board of 11 members, would be chaired by the State Treasurer, and would have the same rules and privileges as a private bank chartered in the state.  To get the bank off the ground, voters would have to approve amendments to the state Constitution, since current law prohibits the state from lending credit and investing in private firms.