Public Bank News: Oakland and More

People Are Talking about Public Banking!

Ellen Brown, President, Public Banking Institute

The amazing Ellen Brown has been talking about public banking for years. She has published two excellent brand-new articles in the last couple of weeks.

How Public Ownership Could Revive Community Banks: You don’t expect Ellen Brown (or any of us) to be favorably quoting the current Treasury Secretary, Stephen Mnuchin, but for once we are all in agreement:

At his confirmation hearing in January 2017, Treasury Secretary Stephen Mnuchin said, “regulation is killing community banks.” If the process is not reversed, he warned, we could “end up in a world where we have four big banks in this country.” That would be bad for both jobs and the economy. “I think that we all appreciate the engine of growth is with small and medium-sized businesses,” said Mnuchin. “We’re losing the ability for small- and medium-sized banks to make good loans to small and medium-sized businesses in the community, where they understand those credit risks better than anybody else.”

Brown breaks down how that happened, and what the problems are, and looks to (no surprise!) North Dakota for an alternative success story.

In an article a few days later, Brown points out how public banks are “safer, local, and half the cost.”

With a loan fund, a dollar invested is a dollar lent, which must return to the bank before it can be lent again. By contrast, as the Bank of England acknowledged in its 2014 paper, “banks do not act simply as intermediaries, lending out deposits that savers place with them.” A chartered depository bank can turn one dollar of capital into ten dollars in bank credit, something it does simply by creating a deposit in the account of the borrower. If the bank’s books don’t balance at the end of the day, it borrows very cheaply from other banks, the Federal Home Loan Banks, or the repo market. It borrows at bankers’ rates rather than retail rates, and that is one of the many perks that a publicly-owned bank can recapture for local governments. Borrowing from banks rather than the bond market actually expands the circulating money supply, stimulating the local economy.

In this article, Brown spends some time talking about Phil Murphy, likely to be elected governor of New Jersey next Tuesday, and a huge supporter of public banks. She’s not the only one looking at Murphy’s public blank platform plank. , feature this topic at The Hill:

… momentum has picked up with a proposal by Phil Murphy, a leading New Jersey gubernatorial candidate, for a public bank as a centerpiece of his economic platform. This proposal was received favorably by the state’s largest newspaper, The Star-Ledger.

New Jersey has approximately $12 billion of public funds invested in large banks such as Wells Fargo, Capital One and Bank of America. In 2015, Bank of America made only three small business loans in the state. Characterizing New Jersey as “the most under managed asset I’ve ever seen,” Murphy wants public deposits reinvested in the state. This plan is one component of Murphy’s broader objective to stabilize state finances and revive New Jersey’s reputation as an investment hub for technology and innovation.

All eyes are on the New Jersey (and Virginia) elections for many reasons, and from our perspective, this is one key issue.

Friends of the Public Bank Join #DivesttheGlobe

On Monday, October 23, several of the Friends of the Public Bank joined the Divest the Globe – Huichin action in downtown Oakland,  sponsored by our friends at Defense of Mother Earth–Huichin, as part of a three-day global action timed to coincide with the meeting of 92 major global banks in São Paolo, Brazil. The intent is to get as much money as possible out of the banks that support pipelines, fracking, and other prioritizing of oil over water, so we can KEEP IT IN THE GROUND.

Over 100 people gathered at Oscar Grant Plaza (formally known as Frank Ogawa Plaza) for prayer, information, and teaching three songs in indigenous North American languages. Then we marched to three local big banks.

At the first stop, Citibank, the group performed a round dance. At the second stop, Wells Fargo, DOME-Huichin led a teach-in while some people went in to divest. And at the third stop, Chase (where the City of Oakland banks) Amazon Watch and others provided a skit where they convinced a “banker” that masaska (money) talks. Back at OGP, resources for moving your money, and ideas about where to move it (including Self-Help Federal Credit Union and Beneficial State Bank) were provided.

The crowd was engaged, the activities were powerful, and the passersby were interested. An extremely successful event; thanks again to DOME-Huichin for all they do.

 

Oaktoberfest Loves Public Banking

All of our outreach events get good attention and support, and we still think the results of our table at Oaktoberfest are special. Friend of the Public Bank Mary was featured in two video blogs by Zennie62:

Here’s Zennie62 interviewing Mary:

Key quote: “[The public banks] don’t care what we say, but they do care about our money. And if there’s a way that I can take a dollar out of their pocket, I will.”

and here’s Zennie62 videotaping (and participating in) a conversation about public banking, retail banking, and the needs of the people of Oakland for banking services.

Plus, we gathered over 400 petition signatures. We’re on the move!

Public Banking Funds Sustainable Energy

On September 25 at 7:00 p.m. in Oakland’s City Council Chambers, 14th and Broadway, Councilmembers Dan Kalb and Rebecca Kaplan sponsored a great event, organized by us and Local Clean Energy Alliance.

Watch the whole evening here:

Wolfram Morales, Chief Economist for Sparkasse, the association of local public banks in Germany, spoke at some length about the structure of public banks in Germany (hundreds of them!), and the role of these institutions in speeding the development of local renewable resources such as solar and wind.

Joining Wolfram were: Nicolas Chaset, CEO of East Bay Community Energy (Alameda County’s soon-to-launch Community Choice energy program), Greg Rosen, Founder and Principal of High Noon Advisors (member of the East Bay Community Shared Solar Collaborative), and Jessica Tovar, Organizer for East Bay Clean Power Alliance. Pennie Opal Plant of Idle No More SF Bay, spoke at the beginning to remind us  of our debt and obligation to Mother Earth.

 

New Jersey Candidate for Governor, Phil Murphy, Supports a Public Bank

Phil Murphy looks like he might be the next governor of New Jersey. Here‘s what he has to say about a New Jersey public bank:

This money belongs to the people of New Jersey. Phil will bring that money home, so it can build our future. Instead of investing $1.5 billion in foreign banks, a public bank will invest in New Jersey’s main streets — in our infrastructure, our communities, our students, and our small businesses. And it will provide capital to communities that, for too long, have been ignored by the financial system, whether they be women-owned businesses, businesses owned by people of color, or small businesses with big ideas who have up to now only had doors slammed in their faces.

It will operate as a strictly independent entity and follow commercial principles. It will work in tandem with our community banks and credit unions – serving as a partner not a competitor. And its profits will be returned to the people of New Jersey as non-tax revenue, not lost in fees to Wall Street.

Gayle McLaughlin Supports A Public Bank

Gayle McLaughlin, former mayor of Richmond, is running for Lieutenant Governor of California, and public banking is on her platform. McLaughlin says a public bank …

can save money and finance public-works projects and priorities, such as affordable housing, infrastructure repair, roads, schools and hospitals, and assist non-traditional industries. … I will make it a priority for California to have a Public Bank! Our money, Our power!

Public Banks Power Local Renewables

Come hear how they do it in Germany!

Monday, September 25, 7-9 pm–Free

Oakland City Hall, 3rd floor, 1 Frank Ogawa Plaza

Wolfram Morales, Chief Economist for Sparkasse, the association of local public banks in Germany, will explain the role of these institutions in speeding the development of local renewable resources such as solar and wind, at this panel discussion in City Hall.

Joining Wolfram will be: Nicolas Chaset, CEO of East Bay Community Energy (Alameda County’s soon-to-launch Community Choice energy program), Greg Rosen, Founder and Principal of High Noon Advisors (member of the East Bay Community Shared Solar Collaborative), and Jessica Tovar, Organizer for East Bay Clean Power Alliance. Pennie Opal Plant of Idle No More SF Bay, will lead an opening ceremony.

The event is hosted by Oakland City Councilmembers Dan Kalb and Rebecca Kaplan, and organized by us and our friends at  Local Clean Energy Alliance.

Find out how a public bank in Oakland could help fund local renewable energy for our new Community Choice program, and bring jobs and economic benefits to communities throughout Alameda County.

A Stakeholders’ Case for Public Banking and a Public Cannabis Bank in California

by Matt Stannard and Marc Armstrong
Commonomics USA
Presented to Cannabis Banking Working Group, Los Angeles, California, August 10, 2017

As our organization, Commonomics USA, is concerned with policies that prioritize the commons, we talk a lot about stakeholders. Stakeholders are also an appropriate place to start in this meeting, because neither a Cannabis Banking Working Group nor a special session on public banking would exist but for strong public demands: for a policy of legal recreational cannabis, for financial protection and security for the MRB industry, and, as we’re seeing throughout California, for public banks.

When viewed from the lens of stakeholder needs, the question becomes what banking system creates security, predictability, opportunity, and sustainability for the primary stakeholders in California’s transition to a new cannabis economy. Those stakeholders are (1) California residents, who voted to regulate rather than prohibit recreational cannabis, but want to be free of crimes, including financial crimes, associated with marijuana-related finance and commerce; and (2), California marijuana-related businesses, of whom many cities are paying special attention to businesses emerging from communities historically victimized by the war on drugs. In Commonomics USA’s experience, publicly-owned and maintained systems often do a better job meeting those particular needs–security, predictability, opportunity, and sustainability–than privately-owned systems, for the greatest number of stakeholders, and especially for disadvantaged stakeholders.

California needs a solution to the cannabis banking conundrum by January 2018. As statements to the Working Group have established, private banks are reluctant to “touch” cannabis money absent a prior “first touch” by the State of California. Although it is unclear whether the federal Department of Justice has the resources or political capital to hinder commerce in states that have legalized recreational cannabis, and experts have told this Working Group that the Cole Memorandum and FinCEN guidelines might “prove to be more resilient” than many suppose, federal prohibition is vexing, particularly with respect to financial transactions for MRB money, and especially against the backdrop of a DOJ led by a vocal critic of recreational marijuana.

The legal and policy context for these problems is ambiguous and unpredictable. The federal government has not explicitly asserted that states cannot set different controlled substance schedules and policies. As legal scholars have pointed out, certain provisions of the CSA seem to anticipate this. Moreover, the United States Supreme Court declined to hear an objection to state-level legalization from other states. Meanwhile, the state of California collects taxes and fees from California MRBs now and will continue to do so no matter how this Working Group answers the banking questions. The federal government, through the Department of Justice and Department of Treasury, has not seriously questioned the tax and fee revenue from California MRBs and there has not been a distinction between tax and fee revenues from medical and recreational cannabis .

This raises interesting philosophical questions: When the state government touches that money, what is the legal basis for it being clean enough to be deposited in a bank? Is the state compromising its fiduciary responsibilities by assuming that these monies are not at risk of seizure? Is mixing tax receipts between different industries merely perpetuating the obfuscation and lack of transparency of an underground economy? We ask these questions because we believe that the legal basis for the state’s ability to legitimize cannabis money needs to be built and made explicit.The federal government has jurisdiction over interstate commerce, but California needs to develop the legal and policy framework for in-state commerce of a product that is federally illegal and, in the case of recreational cannabis, potentially the target of federal hostility. A public bank solution will allow California the opportunity to express the first iteration of the terms of any such answer–by asking the administration and the Federal Reserve banks whether the policy objectives of federal financial crimes and drug laundering laws favor a centralized state bank in the driver’s seat, or a continuation of the decentralized, ad hoc, and often surreptitious practices of cash collection and quirky experiments by small private banks.

Rather than looking at this as a cannabis problem, this is really a banking problem–a problem of the inability/unwillingness of the private banking sector to address both a segment of the population and a pressing social need. That’s a familiar situation for those of us in the banking and public policy world–particularly those of us interested in public banks. In fact, as California stands at the precipice of a cannabis banking crises, it is also immersed in two other banking crises, slow-burning problems that hurt the state’s communities and its economy. The first is the economic toll that big private banks have taken on the state. California’s state and local treasuries have suffered greatly under the interest rates and fees charged by big banks, the costs of financing infrastructure and development, and the reluctance of private finance to fund the kinds of development Californians need. Capital appreciation bonds saddling school districts with interest charges that dwarf the size of the principle are probably the most egregious, but the results are the same: costly public financing, lack of access to financing for public sector goods, and a cynical sense that we can no longer afford to fund good ideas.

The second banking crisis is the unavailability of basic banking services to so many Californians. According to the 2015 FDIC National Survey of Unbanked and Underbanked Households, almost 900,000 residents of the state lack basic banking services, and thousands more — over 19% of households — are “underbanked,” meaning they subsist financially with short-term and very expensive services. Lack of access to affordable services contributes to financial precariousness and insecurity, which is harmful to the individuals, families, and communities affected, and a barrier to sustainable economic security across the state.

So privately owned banks seem to trip over a number of market failures, of which cannabis revenue is one. The reasons may be different–in the case of cannabis revenue, a heavy-handed federal government–but the common denominator is that the tendency to view banking as merely a business opportunity rather than a public utility has meant and will continue to mean that huge populations are unserved, and huge public needs unmet.

But the State of California stands in a unique position to take on these challenges. California is the sixth largest economy in the world. Policy-wise, it has pushed itself ahead of the federal government and much of the rest of the nation on policies from post-carbon energy to family leave, from struggling to forge a universal health insurance system to protecting immigrant communities. New government-owned, nonprofit JPAs are being formed to produce renewable energy. One might say California is forging a new economy. We think a new economy needs a new bank–a bank of its very own, that leverages the power of banking based on deliberative policy objectives rather than using profit and loss as a starting point for financial policymaking.

After studying public banks and public banking campaigns for many years, and listening intently to the discussions in these Cannabis Banking Working Group meetings, as well as several divestment and public banking meetings across the state, we offer this four-stage proposal as a starting point for discussion.

The first phase would be the drafting and legislative enabling of a public bank: The Department of Business Oversight would define a Public Bank Charter for a depository bank serving the unmet banking needs of the California public. California’s legislature would pass the enabling laws to support and protect this bank license. In this phase, the state would develop a business plan as part of its application to the Federal Reserve Bank of San Francisco for a master account number. We believe that this phase can begin immediately and, as a matter of fiduciary responsibility, would lower the risk of the subsequent phases. Should the Federal Reserve Bank of San Francisco grant the master account to this public bank without a fight, the landscape dramatically changes.

The first phase also includes capitalization. Many possibilities exist for capitalizing the bank, including debt or equity financing, issuing corporate bond and pension funds with the cannabis industry or the general public stepping forward to participate; or even constrained common stock in the fashion of the ownership of the Green Bay Packers.

In the second phase, the state bank creates depository services for MRBs and the unbanked and underbanked. Limited commercial account services could include demand deposit account services, cash concentration services, depository reporting, and automated payroll deposits for employees. Core, low-cost, retail banking services for the un- and under-banked market could include simple transactional and savings accounts, automated payroll deposit, peer-to-peer money transfer, international remittances, and debit cards. Low-cost methods used to access bank accounts could include online devices, existing ATM/Kiosks, and mobile phones.

In the third phase, the bank develops its capacity for risk management, compliance automation, and payment automation. The objective would be to lower the cost of compliance by using analytics and monitoring software to provide important reports using automated procedures and monitoring products. This Working Group has already heard about these capabilities from other participants. These products will provide greater transparency to the financial system. These participants have also mentioned payment automation capabilities, and we recommend that this phase includes this important technology. This can be done with an app that would complete payment transactions between cannabis consumers and cannabis businesses with an account at the public bank. If necessary or desirable, it could avoid the VISA, MasterCard and American Express network and transfer funds from the buyer’s California bank account to the seller’s account in the public bank.

In the fourth phase, the bank provides credit, lowering the cost of public financing, using public credit instead of taxpayer money or municipal bonds for the construction of schools, toll bridges, water and sewer systems, and a sustainable post-carbon energy system. Many additional public goods require financing and have huge social and economic payoffs, from affordable housing loan programs (including loans directed to public employees), that help people live in the same communities where they work, to loans for cooperative startups. The bank could also use its public credit to provide lower costs to wage earners saddled with student loan debt, helping a demographic that has, by many measures, gotten a raw deal in California.

There are four main benefits that a public bank can provide:

  1. Satisfies unmet market needs. In the event of market failures, when private banks are not able to meet the needs of the banking market, a public bank is able to be used to fill in the gaps, to provide deposit account and credit services where there are none.
  2. Cost savings. A public bank has a lower cost of doing business (no bonuses, no extreme salaries, no dividends, etc.) that can be passed on to borrowers, whether students, businesses or municipalities.
  3. Economic sovereignty. A public bank is a democratic approach to public finance, involving both the public and other stakeholders in the loan portfolio decisions.
  4. Counter Cyclicality. A public bank’s equity is not publicly traded on a stock market and is not subject to the same changes in valuation in as rapid a pace as we saw in 2008 and 2009 stock market, where some banks lost upwards to 80% of their equity. Because of this, public banks have the ability to continue to make loans precisely when private banks are terminating lines of credit, ending loan programs, and not accepting deposits.

Some folks, including a public official or two, are tired of public banking advocates bringing up the Bank of North Dakota. So we will only bring it up to explain that there are many roads to banking democracy This proposal, as presented, does not suggest transposing the BND model onto the State of California. It isn’t a proposal to use California’s assets to capitalize the Bank or to seek partnership with or underwriting of the private banking industry. In the wake of natural disasters, BND has the ability to make bridge loans to businesses and homeowners before they are reimbursed by FEMA and suspend mortgage and student loan monthly payments. In 2015, BND obtained more than $2.5 billion in public deposits through pledging services for private banks, in addition to providing $679 million of liquidity through BND’s secured and unsecured federal funds lines. Our proposal doesn’t preclude any of that, but it doesn’t require any of that.

The process outlined in our proposal should occur in tandem with the ongoing effort to relax federal law, consistent with the recommendations of Erwin Chemerinsky, Jolene Forman, Allen Hopper, and Sam Kamin, in their UCLA Law Review article “Cooperative Federalism and Marijuana Regulation.” Passage of the SAFE Act, a robust reaffirmation or strengthening of Cole-style and FinCEN guidelines, all as part of the ongoing effort to reach out to rational federal policymakers–who we believe really do outnumber the louder and less reasonable voices in Washington. California is likely to make that request to the federal government anyway. But doing so having created a public bank in the world’s sixth largest economy, a bank committed to financial oversight of cannabis banking as a matter of public policy, creates a very different context for the dialogue between the federal government and the states concerning cannabis.

Similarly, if it is to find any “banking”-based solution to MRB revenue’s federal illegality, California will inevitably have to face the question of obtaining a Master Account Number from the Federal Reserve Bank of San Francisco. Why not, then, have the State of California itself, on behalf of a state-owned bank with unprecedented control over the cannabis economy, make that application?

Most people in this room understand the general case for public utilities meeting unmet market needs and, specifically, public banking doing the same. As movements in Oakland, here in L.A., and in other parts of the state suggest, there is widespread support for exploring public banking in California. But the reason we’re having this conversation, here with the Cannabis Banking Working Group, is that this is a “try or die” moment for the cannabis banking question. Some entity or collection of entities must inevitably dialogue with the sources of current federal complications concerning cannabis banking. From a stakeholders’ perspective, we believe it makes a lot of sense for that entity to be the State of California–affirming the decisions the people of the state have made, owning those decisions.

This is a chess game, with economic sovereignty being the big win for California. Understanding the possible moves that the federal government can make is critical. We assume, for instance, that recreational cannabis tax revenue can be collected and placed in one of the state’s accounts in a private bank. What if, in the Attorney General’s quest to disallow recreational use of cannabis, this regulation is changed to disallow this recreational cannabis tax revenue from being legally deposited in private banks? California can collect the tax, but it’ll end up with the same banking issue now experienced by MRB’s. There will be yet another run on pickle barrels, only this time the state will be buying them.

What is needed is a body of state law that creates a Public Bank Charter (or license), defines “municipal affairs” for state charter cities, sets standards for in-state commerce of recreational cannabis, and protects Californians so that they may conduct safe economic transactions in the currency medium of choice.

A public bank can then be created in order to act as the organizational bulwark, protecting California’s interests by meeting unmet market needs and issuing deposit accounts to MRBs and the unbanked, efficiently handling the federally mandated compliance issues, automating payments (including tax payments), and making California’s economic sovereignty a reality.

A public bank acting as a necessary public utility that provides banking services to MRBs, to the unbanked and underbanked, and for lower cost infrastructure and commercial financing, can help California use its status as a global economic power, and its huge economies of scale, to create the appropriate financial infrastructure necessary for this undertaking. The decision to create such a bank as a solution to the cannabis conundrum would send an unprecedented signal to the world that California is stepping into a new cannabis economy and a banking economy that meets the needs of all Californians, businesses no matter the industry, and municipalities.

Matt Stannard is policy director of Commonomics USA. Marc Armstrong is president of Commonomics USA.

Picking Up the Trash in Oakland

Oakland City Councilmember Noel Gallo represents the Fruitvale district. One thing he does is lead a group of volunteers every weekend to help pick up trash around his district and combat the endless illegal dumping problem.

On Saturday, July 29, five of us volunteered with him, and some of us plan to come back on a regular basis.

He tweeted about us!

Volunteering has so many purposes:

  • the trash gets picked up and the neighborhood gets the benefit
  • we learn a lot about Oakland, and how a city councilmember can interact with his district
  • we get to talk to Councilmember Gallo and his other volunteers about public banking and other city issues we care about

If you live in Councilmember Gallo’s district (or even if you don’t), consider donating a Saturday morning now and then. You won’t regret it.