ALTERNATIVES FOR PUBLICLY OWNED BANKS

Much attention is being paid to the banking industry, its role in precipitating the economic crisis and the attempts to fix banks and get credit flowing again.

However, many believe that trying to bail out the very people who caused the problem in the first place makes as much sense as trying to put out a fire with gasoline. A good case can be made that the private banking industry has reached the end of the road as the primary source of money creation, and that we need to adopt a different approach to satisfying our credit needs.

Many advocate that banking be taken out of the hands of private owners and returned to public ownership, as was the case in the earliest days of our country. In states like Pennsylvania, the colonial economy thrived under publicly owned banks.

One of the leading voices for a return to publicly owned banks is attorney Ellen Brown, author of the book Web Of Debt. Ellen advocates that governments, from the federal to the local level, establish their own banks modeled after the bank owned by the state of North Dakota, not coincidentally one of only two solvent states in the country. Her book and numerous articles build a very good case for why publicly owned banks are the right solution for our economy.

However, there are two other ways to achieve the public ownership objective — through the use of non-profit corporations that can own banks dedicated exclusively to the public’s benefit, and a hybrid ownership vehicle that can combine governments, non-profits, foundations, pension funds, unions, private banks and others. Both the government and non-profit approaches brings benefits and challenges:

Government-Owned
Nearly all governments own substantial assets and would not need to raise any additional capital in order to satisfy national and international banking guidelines. From a financial standpoint, they could establish a bank quickly. However, that speed is currently more than offset by the time required to obtain legislative approval.

Non-Profit-Owned
Non-profit-owned banks can be established by ordinary citizens without requiring legislative approval. And they can be designed to address very specific objectives, like supporting green businesses. However, such efforts normally require raising $10-20 million in order to establish a proper capital base for their bank. Thus, even though the corporate structures could be formed quickly under existing statutes, the capital requirements could be very problematic for non-profits and take time to assemble.

Non-profit organizations could be more flexible in addressing specific community objectives and allow for more direct community involvement than a government-run organization.

Hybrid-Owned
A third category of ownership exists that potentially represents the best of the other two approaches, and brings additional benefits. That is achieved through the vehicle of a bank holding company, provided that the bank holding company is formed as a special type of LLC called an L3C.

An L3C would provide a mechanism that would allow governments to leverage their substantial assets as one of the key capital contributors to the L3C, without having to enact extensive legislative efforts to allow them to utilize those assets.

The L3C mechanism would also allow for the same flexibility of management that is afforded under the non-profit mode and provide for more direct citizen participation and influence than would be the case for a government run public bank. Likewise foundations, pension funds, unions, private corporations and individuals, trusts, private banks and others may join in this effort to the benefit of all.

See the articles A Common Bank Holding Company For States, Counties & Cities: A Solution for Our Economic Problems and Public Banking and L3Cs for a more in-depth exploration of this approach.