Recognizing the economic hurt that the coronavirus pandemic has inflicted on low-income San Francisco residents, members of the Board of Supervisors are pushing to create a so-called “public bank” — a city-run financial institution that would provide low-interest loans to small businesses and to public-benefit projects, like affordable housing.
“Our banking institutions play a key role in society in exacerbating … inequities and centering profit over the well-being of our communities,” said Supervisor Dean Preston, the legislation’s author. “As we look forward and chart a path to economic recovery, public banking is a powerful tool to regenerate our economy based on our shared values.”
Broadly defined, a public bank is a financial institution run by a city or state government that administers low-interest loans. And the bank would use any profits on future loans or return the money to the city’s general fund, as it would not be beholden to Wall Street or private investors.
The public bank loans could be granted to small businesses, for example, or used to fund large projects aimed at the “public good,” such as affordable housing or green infrastructure, proponents say.
Just how a public bank would be structured, where it would initially receive capital to provide loans, and how low interest rates would be all remain big questions. Preston’s legislation merely establishes a working group composed of banking experts, community members, and city officials tasked with setting the course for the bank’s creation.
Within one year, the working group would create a business plan for San Francisco to create a lending entity called a “municipal financial corporation.” Once that is approved by the Board of Supervisors, the working group would then create a plan to have that financial corporation transform into a fully-fledged public bank in five years.
The bank would be licensed through a process established by AB 857, a state law legalizing public banks in California, which was signed by Gov. Gavin Newsom in October, 2019.
During a Tuesday news conference, Jackie Fielder, the cofounder of the San Francisco Public Bank Coalition, said that the intention is to create a bank that works similarly to the Bank of North Dakota, the country’s only public bank. Established in 1919, the bank administers loans through small banks and credit unions, providing low-interest student loans, and loans for agriculture and infrastructure.
“That’s what we want here in San Francisco,” Fielder said.
The push to create a public bank in San Francisco appears to have enough votes to pass. In addition to Preston, five others — Supervisors Connie Chan, Matt Haney, Myrna Melgar, Hillary Ronen, and Board President Shamann Walton — spoke in favor of the legislation on Tuesday.
Walton said he was committed to making public banking a reality in the city.
“We need a city-run financial institution where our assets are invested in things that benefit our communities in San Francisco,” he said. “We put a lot of money in banks that banks benefit from, and we need to make sure that the investments we make as a city — and the resources and assets that we have as a city — go back to the community.”
I’m concerned that the bank won’t price risk adequately due to political imperatives. That is, higher-risk loans should be charged higher interest rates. And when loans go bad, the taxpayer will be on the hook. Also, if the public bank has to foreclose on assets, that could be politically difficult. We’re already seeing that with the SF Federal credit union foreclosing on taxi medallion loans. There’s going to be political pressure to have very liberal lending policy: cheap loans to high risk politically-connected borrowers and then forgive the loans when they go bad.
Great idea!
Now who bails it out, when too many loans go bad?
This is a long overdue idea. Thanks to Dean Preston for continuing the work of many in trying to get this done in San Francisco and California as well. Why should North Dakota have all the fun?!?
This is a great idea. I heard the former head of DPW is looking for a job.
The major stumbling block to a public bank is designing a governance structure that insulates the power of fractional reserve lending from the never ending perp walk of department heads that represent the best and brightest of San Francisco’s political class.
As usual, Preston comes up with a terrible idea. Does anyone think that the same people who run San Francisco’s other departments are capable of running a bank? Unfortunately, Preston and some of his colleagues believe that socialism works. It doesn’t and never has.
Actually, it works very well. Look at the Scandinavian countries. Free college, universal health care, and the happiest people.
Do you even know what socialism is? Most Republicans don’t, it seems.
The average tax rate in the world is 31.37%, the European average is 32% and the OECD average is 41.58%. In the Nordic countries however, the tax rates are higher with Denmark at 55.56%, Finland at 51.25%, Iceland at 46.22%, Norway at 47.2% and Sweden at 57% 6 .
https://www.researchgate.net/figure/Tax-rates-of-Nordic-countries-world-Europe-and-OECD-countries-4-Taxation-Since-the_fig2_284113979#:~:text=The%20average%20tax%20rate%20in,and%20Sweden%20at%2057%25%206%20.
Without wage control, you’ll never have equality.
Does it make sense to pay plumber/electrician $150 per hour?
Germany – Plumber gets $18 per hour.
https://www.payscale.com/research/DE/Job=Plumber/Hourly_Rate
That $150/hour does not go to a worker. It goes to a contractor, which means a business. You seem to want to reduce journeyman wages to $18/hour. That means busting unions and shows your sympathies. Your argument is based on false equivalencies. Workers make profits for businesses, so are, by definition, underpaid.
And multi-national global capitalism is working so very well. That detail aside, a public bank or cooperative business structure is not a socialist model.
A way for the state and city to handle marijuana grow houses revenues and marijuana store deposits that no federal supported banks will accept.
A credit union is a coop of the depositors. The City can’t just take it over.
Time out. SF officials are inept at running everything. No way anyone here should get behind this idea unless you’re a fan of more corruption. Go use the credit unions.
What could possibly go wrong letting “community members” evaluate and direct loans to favored projects using public money.
Hmmm – have people ever heard of a credit union? Similar idea…
Very cool article Julian,
Can’t we kill 2 birds with 1 stone. Can’t the city of SF take over the SFPD Credit Union? The infrasture is there. We can free all the accounts (defund the police) use those funds so the City can help small business, non profits and fund affordable housing. All profits stay inhouse and go back into the community.
The SFPD Credit Union is not owned by the SFPD. In the same way the SF Fire Credit Union is not owned by the SFFD.
I’ll even jump ahead, the POA, I believe, has no ownership in the Credit Union.
And if I’m not wrong, the property where the credit union sits is currently ear-marked for affordable housing.