When banks abandoned American Samoa, the islands found a solution: public banks

It's not a tragedy of the commons unless something artificially prevents banks from charging a profitable rate for loans. If no other bank is doing business there, and if any bank which does do business is allowed to make a profit, then certainly one will. Indeed, that's what the 'loan sharks' are doing: providing desired services at a market-clearing rate.

It seems to me that a public bank will end up having to be subsidised from the general fund to cover its losses, which in the case of American Samoa probably isn't very large.

Also, most credit unions either use federal (national) credit unions and large banks for services. We bought our cash from JP Morgan, sold our mortgages to US Bank and kept reserves with a federal CU. Without these services, expenses would have been higher or services would have been reduced.

(genuine question, I have no idea how banking works)

What I was pointing out was the arbitrage of collecting cash locally (low risk) whilst seeking low-risk lending opportunities elsewhere. This actually extracts cash from the local community without providing offsetting borrowing opportunities. The community is net worse off.

Rational from the bank's perspective.

These days if you're a country and you want to grow then you need capital investment. Now that war and conquest and slavery are severely frowned upon there's really no other way to achieve growth but to get some rich <strike>lord</strike> investor to give you a bunch of money on "friendly" terms. (And for the investor class it's all about how "friendly" you are. Countries that are friendly to investors can thrive. Countries that aren't usually get fucked. This is the real reason China is so deeply scary to the global investor class.)

The capital investment needed to sustain growth can either come from domestic sources or foreign sources. Of course if your country has very limited financial infrastructure it basically must come from abroad. Again, for various reasons, as the Cubans have discovered, you can't really self-bootstrap a modern industrial economy. (Unless you're the British Empire and you're willing to go out and conquer half the planet and feed that into your nascent industries. But again this sort of thing is no longer kosher these nowadays.) So you must go begging to the foreign creditors who will demand "friendly" terms not unlike what the British offered eg India.

Note that this dynamic is play even for powerful and developed countries. The reason Britain continues to defend and support and bail out its highly dysfunctional banks is because it knows very well what will happen if those banks collapse. The British private sector will get the capital it desperately needs to grow from foreign banks. And once that happens it would be completely at the mercy of foreign creditors. This is the real reason nations must defend/bailout their banks.

> I don't think those things can fill these void left by a lack of community banks.

There's no such thing as a community bank as you imagine it. You can create mission oriented banks (eg banks focused on some credit-starved minority) but these are rarely profitable in the classical sense. In the end the only "defense" against global banks is to have your own global banks. The only defense against being indebted to foreign creditors is being able to capitalize the majority (50+%) of your own growth.

A great way to grow a community is to take any excess resources (proxied by money) and reinvest locally. However, if all the members bank with a multinational bank then the money (hence resources) will probably end up in a city in another country. The community won't grow.

If there was a systemic bias (beyond economies of scale) that favors big banks at the expense of community banks, that might squeeze the life out of small productive communities that the banks view as 'high risk' through a lack of knowledge about their circumstances. That would be a problem, but that issue is not related to this thread.

If the foreign cities are just more productive, then hopefully the community members will be better off because they can import enough to make up for the lack of local infrastructure.

That looks like a complicated question that does not have a single answer. And a government can spend money with much finer granularity than it can tax or regulate, so it is very likely that letting the banks concentrate (up to reasonable levels) is the correct answer.

Corporations have rarely (if ever) been meant to further public good. They have almost always been for "unrestrained pursuit of profit to the exclusion of all other concerns".

I agree that as soon as they start acting outside public interest they should be reigned in by regulators, the problem is that regulators tend to turn a blind eye when a corporation can pay them to.