
Will Costello
Public banks aren’t competition for local credit unions—rather, backers say, they support them.
In late 2016, Wells Fargo, the consumer lending behemoth of Wall Street, attracted the eyes of the Consumer Financial Protection Bureau, the powerful government watchdog and brainchild of 2020 presidential candidate Elizabeth Warren, for allegedly opening accounts for millions of their customers without their knowledge or permission. Wells charged fees on these accounts, and made a lot of money doing so, and numerous inquiries and Congressional hearings revealed that the accounts were opened as a result of intense downward pressure on salespeople to push outlandishly high and sometimes mathematically impossible sales quotas. The bank has thrown its money behind private prisons, the NRA and the Dakota Access Pipeline, and has been charged heavy fees for insider trading and discriminatory lending (they charged black and brown people more for loans)—not to mention its CEO makes 473 times as much as its average employee, the 33rd-highest pay discrepancy among Fortune 500 companies.
Today, most of the City of Santa Fe's money is in their vaults.
A public bank would change that.
Mostly a fringe idea advocated by an eclectic array of lefty finance geeks, public banking has been catching steam across the United States in recent years, including in New Mexico.
The idea is pretty simple. Rather than parking public funds with a major bank, where they're invested in all sorts of shady dealings across the world, a state or city would establish an institution to hold that money and loan it to locals for economic development, to governments for projects like affordable housing, or credit unions and community banks to help average people borrow for stuff like cars and homes—all with lower interest rates than big banks would ever offer.
All of this would be managed by a board of directors that would likely be appointed by elected officials, such as the governor or the Legislature.
This structure, according to David Jette, a co-founder of Public Bank LA, an advocacy group that pushed for a public bank in Los Angeles, "gives residents more control over how their tax dollars are spent."
"Basically, you multiply economic gains while divesting," Jette says. Divesting means stopping investment in things which, in this instance, the general public decides aren't so good, like an oil pipeline through Native territory. That's how Public Bank LA got started; its founders wanted to push their elected officials to stop storing their tax money with banks that were using it to fund projects that threatened water resources, worsened climate change and harmed Native tribes. Eventually, they decided that the best way to do so was a public bank.
SFR spoke to several members of the board of directors of the Alliance for Local Economic Prosperity, a group that sprang out of a Santa Fe-based push for a public bank in town, and asked them all what their elevator pitch for a public bank would be. They all gave roughly the same answer: "We want to keep New Mexico's tax dollars local, safe and working."
They also pointed to an unassuming and perhaps unexpected case study: North Dakota. The nation's first public bank was established there in the early 1900s, and so far, the only place to follow suit has been American Samoa, which established a public bank last year.
The Samoan bank doesn't have much of a track record yet, but the Bank of North Dakota has produced some pretty phenomenal results in its 100 years of existence. When it was founded, the bank had $2 million ($36 million in 2019 dollars). It now manages over $7 billion, all available to be loaned to North Dakota cities, towns and businesses at interest rates unheard of on Wall Street. If that isn't enough, North Dakota also has the lowest unemployment rate in the country. North Dakota's annual budget over the past 10 years is also more than $300 million fatter because of the bank's returns.
So how likely is a potential Public Bank of New Mexico? It's getting more realistic every year. The City of Santa Fe commissioned a feasibility study in 2016 and a task force a year later to investigate the possibility of a public bank in Santa Fe. Their conclusion: Santa Fe is too small, and the costs of establishing such an institution are too great to justify a public bank in town.
But.
They did recommend that the city engage wholeheartedly in any effort to establish a statewide public bank that would serve all of New Mexico.
To that end, a memorial bill—albeit one that did not survive—landed in the New Mexico House of Representatives this session "requesting the Legislative Finance Committee to undertake a feasibility study of establishing a state-owned bank in New Mexico."
In pushing for barely known ideas like this one, every step counts. Public Bank LA managed to get a referendum on the 2018 ballot, Measure B, which would establish a public bank for the city. The vote didn't pass, but the people who worked for it say that it's a major victory.
"We earned 44 percent of the vote," Jette says of the LA effort. "Obviously that's hundreds of thousands of votes."
That they could get that many people on board is an encouraging sign for Jette. He added that the biggest problem facing advocates is not resistance to the idea, but simply a lack of knowledge about what a public bank even does.
"I don't think people understand what role banks play in their lives," Jette says, so helping them take that power back matters.
Lovers of their local community bank or credit union need not fear though. Advocates of public banks don't anticipate that any upstart public banks would offer personal accounts for average consumers, which could drive smaller financial institutions out of business.
Rather, a public bank would partner with local banks and credit unions and throw its money behind loans on which credit unions and smaller banks had already done the legwork, potentially providing a lot more money to those institutions to make small business loans, draw up mortgages or issue student loans. Customers would still benefit from the lower interest rates that a public bank could offer.
"We very much want to support credit unions and local banks," says Elaine Sullivan, the board president of the Alliance for Local Economic Prosperity. "There are three and a half times more thriving community banks in North Dakota than the rest of the states. That comes with a level of transparency that global banks don't have."