Global Courant
Los Angeles is taking another step toward opening a city-owned public bank that would support public interest projects.
The city council voted last week to fund a feasibility study for the bank after proponents argued it would outperform private banks in serving black and Latino communities, small businesses, green energy initiatives and affordable housing projects.
The move was the council’s first financial investment in the long process of launching the bank.
The idea of a public bank had been floating around in the city council for several years. In 2018, voters rejected a proposal that would have changed the city charter to allow for the bank’s creation. A year later, Governor Gavin Newsom signed a state law allowing all cities and counties to establish public banks, bringing the idea back to the table in Los Angeles.
The city council voted in October 2021 to examine the viability of forming a city bank and prepare a business plan to do so. Over the following months, the council sought a consultant to conduct a feasibility study. With new political leadership and support from a number civil societythe city is now preparing to spend $460,000 on the first phase of the study.
A public bank’s decisions would be driven by the needs of Los Angeles communities rather than private shareholders, proponents say, leading to investment in projects and people normally ignored by Wall Street.
Corporate banks “don’t give back to our community,” said Gisele Mata, an organizer with the Alliance of Californians for Community Empowerment (ACCE) Action. “In fact, they just take. There is no way we can get our communities out of predatory lending unless we create our own, because banks don’t operate in a way that gives back to their communities.”
Opponents worry about political clout and question the city’s ability to oversee the operation of a financial institution.
Glenn Bailey of the Los Angeles Neighborhood Council Coalition is open to the idea of a public bank, but is concerned about interference from city council members, especially given recent corruption allegations. He also questions the council’s decision to proceed despite voters’ rejection.
Cities such as San Francisco, Oakland and Philadelphia have also launched processes to establish public banks. More than a century ago, North Dakota established the country’s only state-owned bank, which mainly finances farmers and small businesses.
“The power of people’s money in Los Angeles — which has largely been ceded to the big banks — can be reclaimed for democratic control and for the benefit of the people of Los Angeles,” said Walt McRee of the Public Banking Institute.
Proponents of a public bank say that partnering with local financial institutions could create opportunities for affordable housing, green energy and wealth creation in Los Angeles that private banks overlook.
In May, the Jain Family Institute and the Berggruen Institute released the final part of a report outlining what a public bank might look like, how LA could benefit from it, and what its limitations might be. The research has caught the attention of lawyers and councillors, who are more open to the idea.
In the report, JFI-Berggruen suggests that initiatives through a public bank could build or maintain more than 17,000 affordable homes in Los Angeles within 10 years.
The report describes how a public bank can help with construction loans, convert multi-family homes into an affordable housing stock, provide mortgage support and create additional housing units.
In addition, the public bank could set up a fund to buy existing affordable housing before private developers move in and convert units into more luxurious housing.
ACCE’s Mata believes a public bank would reduce wrongful bankruptcies, predatory lending and uncontrolled fees.
“The reason why we are in such a housing crisis is because corporations have become landlords,” said Mata.
Trinity Tran, the co-founder of Public Bank LA, a volunteer initiative advocating for the establishment of a public bank, notes that Los Angeles is spending huge sums of money on corporate bank debt and intermediaries. Based on the 2022 controller’s report, Public Bank LA estimated that Los Angeles is paying $621 million in debt service and brokerage fees. A public bank could redirect those funds to social projects and “simplify the complex web of affordable housing financing.”
Low-income communities of color would especially benefit from a public bank, proponents say. A public bank could offer cheaper debt and free banking for low-income communities. It could find alternative ways to score credit, said Yakov Feygin of the Berggruen Institute. And it could help employees take over small businesses from retired owners to prevent outside buyers from taking over. This would increase job stability and wealth creation.
“Regulation in the current financial system does not create enough incentive for banks to serve the needs of low-income communities of color,” Tran said. “A public bank will be designed with the mandate to generate targeted wealth for communities neglected by Wall Street.”
Many people are skeptical. While detractors acknowledge that the goals for a public bank sound noble, they question the city’s ability to open and operate a complex financial institution.
Jack Humphreville, a former investment banker and former co-chairman of Los Angeles Budget Advocates, said other city programs should fund social projects, not banks.
“Loans are not subsidies,” he said. “They must be paid back.”
By investing in large long-term projects, Humpreville worries that a public bank would not have enough money for depositors’ short-term needs. Banks are “enterprises” that require advanced technology and management, and Humphreville questions the city’s ability to choose competent contractors.
“Articles just talk about the bank as a social goal or a political goal, rather than having anything to do with banking,” he said.
Pros and cons agree on one point: if the bank is to prosper, it’s crucial to hire the right people.
“Having this thing run by skilled professionals, and actually keeping a little distance from the city council, I think it’s really important,” Feygin said.
In the public bank, customers can take out loans for specific activities, but they cannot set up savings or checking accounts like in a private bank. Instead, deposits would come from the city, as well as pension funds and green mutual funds.
“A local government like the City of LA can then borrow directly from a public bank without the need for expensive, private Wall Street intermediaries,” Tran said.
To ease the startup process, the city would likely create a municipal finance company that manages public funds and loans, but cannot take deposits like a public bank can. Once the municipal finance company demonstrates its ability to manage funds, it would transition into a public bank.
Nick Barnes-Batista, a spokesman for Councilman Hugo Soto-Martínez, said a municipal finance company is easier to set up and would speed up the arrival of benefits from a public bank.
In the coming months, the council’s Budget and Finance Committee will determine funding for the study to determine the next steps for setting up the bank.
“The next step should include the public,” Soto-Martínez, who has been an outspoken advocate for a public bank, told The Times. “We need to have the broadest possible support for this.”
