Has the Time Come for City-Run Public Banks? | Hacker News Reader

Has the Time Come for City-Run Public Banks?

citylab.com

109 pointspseudolus68 comments

Politically, I certainly see the appeal.

From finance/economics point of view...I dunno. If I was cynical, I might say it seems like we're being asked why city funds should be parked in accounts making safe, legal, loans which are likely to paid back, when we could just let the amazing SF city government use the money as a slush fund to make loans to their pet causes and politically connected businesses.

Phrased like that, it doesn't sound amazing! Or as the article puts it:

> There’s been some suggestion that these types of banks would lend to entities that might not otherwise be creditworthy,” Beth Mills, a spokesperson for the California Banking Association, told CityLab.

Yeah, and most of those suggestions are coming straight from the mouths of the proposals supporters. If you're struggling to find loans for your ambitious infrastructure project, is it... maybe... possibly... that the proposal doesn't make a ton of financial sense? What's your city's (or state's) track record on these projects? Would a neutral analyst fear that you're fudging the revenue estimates and lowballing the costs? What is the risk of overruns? Bluntly, how credit worthy is the project?

> “Every politician is talking about affordable housing, but it would be so much more powerful if they had a bank that was financing affordable housing,” said Jacob.

No doubt. But will building affordable housing be profitable? And if not, will the project be able to repay the loans? (Or if so, why are banks not willing to finance it?)

There's a real "dog that didn't bark" feeling to this article, at least for me.

I propose that if you want to run a bank you probably want sufficient facility with numbers to make projections about the future and sufficient probity to trust those projections even when they’re inconvenient, plus the integrity to not steal from the bank.

Happily, there is a trivial work sample test of this for cities: are your city employee pensions fully funded?

This implies bankers are good at banking - the same bankers who famously opened millions of ghost accounts for customers [0][1], laundered money [2], or let rogue traders exploit moral hazard [3].

Public banks would institute things like transparent charters that would be voted on by the citizens of the cities and communities - to decide what kinds of investments would be allowed and not. So you could divest say your teachers pension fund out of vehicles that fund ICE detention centers.

[0] https://www.bloomberg.com/opinion/articles/2016-09-09/wells-...

[1] https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scan...

[2] https://www.reuters.com/article/us-usa-usbancorp/u-s-bancorp...

[3] https://en.wikipedia.org/wiki/2011_UBS_rogue_trader_scandal

>that would be voted on by the citizens of the cities and communities - to decide what kinds of investments would be allowed and not

That is a very rosy assumption given the track record of voters, especially in the US.

It’s better than the alternative which is no democratic oversight of how Wells Fargo or Goldman Sachs uses or invests teachers pension funds. It was just power we accidentally gave away without realizing we could take it back.

It would be far easier to just implement IRAs and let people vote by deciding themselves where to invest.

Don't be absurd. We can't let people own their own retirement savings. We need to entrust that money to CALPERS, so that they can use our retirees' savings as a political cudgel, divesting from certain companies for ideological reasons, and buying board seats on others to exert their influence.

The political machine doesn't just feed itself. It takes other peoples' money and abuse of the public trust to make the magic happen.

(Worry not. If there's any shortfall from investing money politically, California taxpayers will make up for it.)

As if giving the money to Wall Street to manage doesn't give them immense political power.

Total stock market index funds are about as good as it gets right now, given the capacities of most people and their lack of interest in investing.

>no democratic oversight of how Wells Fargo or Goldman Sachs uses or invests teachers pension funds.

Why should anyone have a say in where the money is invested except the pension fund itself?

And why isn't it the teacher's pension fund's responsibility? They can't even put their money in a bank that aligns with their investment philosophy, but you want them to run the money themselves??

>the same bankers who famously opened millions of ghost accounts for customers [0][1], laundered money [2], or let rogue traders exploit moral hazard [3].

A handful of examples doesn't negate centuries of of financial history. And I love how you state "allowed traders to exploit..." as if this has anything to do with banking ability. Is there an industry on the planet that doesn't have such examples? Perhaps we should run our own mines, develop our own social networks and produce our own cars locally, too? There are scandals everywhere you look.

>to decide what kinds of investments would be allowed and not.

Oh that would be brilliant. Most people don't even understand elementary finance. Even on this board, you can paste data from the financial reports and have it downvoted.

>But will building affordable housing be profitable? And if not, will the project be able to repay the loans? (Or if so, why are banks not willing to finance it?)

That's my gripe. Nothing will stop the landlords from just jacking the prices. And if they don't, no one competent will run it since they can't make money. Really, the problem here is that critical industries should not be eligible for more than reasonable profit margins.

> Nothing will stop the landlords from just jacking the prices.

The only thing stopping landlords from "jacking the prices" is vacant supply.

> Really, the problem here is that critical industries should not be eligible for more than reasonable profit margins.

Price controls for food: it'll work this time!

You don’t need a price “control” per se. Just tax landlords’ profits progressively, with very steep top marginal rates.

If it seems controversial to use that money for some other purpose, return the money as rent subsidies equally among all resident renters.

Then all the high income property owners will trade their properties in your city for some other properties in some other city, the properties in your city will all be owned by the retirement funds of middle income people from all over the country who don't pay the high tax rates, and nothing about rents or real estate prices would meaningfully change.

Also, to the extent that the tax was actually effective, it would reduce the incentive to build new housing and thereby raise housing costs.

> If it seems controversial to use that money for some other purpose, return the money as rent subsidies equally among all resident renters.

So you charge them money in tax and give it to the renter, what happens when they respond by raising the rent by that amount?

Currently people invest in real estate expect a certain% return and if it's lower than that they invest in the stock market(or real estate elsewhere).

Now imagine we tax half their profits. This would cause two things. Landlords would convert rental units to owner occupied. Because rental units will now have half the value of a rental unit as it would as owner occupied. Then all rental unit developers would stop building until the scarcity of rental units drove up the leasing cost to make being a landlord profitable again.

> Price controls for food: it'll work this time!

Very cheap food is working right now in the USA thanks to incredible subsidies, and it is flooding the world market with tons of cheap food.

Agriculture is hugely subsidized in the US, to the point that corn is so worthless it's cheap enough to add or inject into everything.

Meanwhile, the USDA manages supply through bulk buys via the Agricultural Marketing Service which it then dumps on schools, low end neighborhoods (Government Cheese being the most famous case of USDA food dumping), food banks, etc.

For a UK take on this see: http://www.harrowell.org.uk/blog/2013/02/23/the-simple-plan-...

The trick is that the local authorities are already paying 100% of the rent for a large category of people, so they might as well cut out the middleman, own the houses, and pay the statute-guaranteed money to themselves.

I'm not a big fan of "Bank of Los Angeles/San Francisco/etc" but I would be a much bigger fan of "Bank of California".

It should be geared toward serving as a bank, first, and an investment vehicle, second or minimally, and its records should be excruciatingly, painfully transparent. It also needs to serve as a backstop for those who find the current banking system too expensive or too exclusionary. Paycheck cashers are predatory vermin who need to be put out of business.

I view disconnecting from Bank of America, Wells Fargo, and their ilk simply to be a bonus.

In many countries the post office offers (or used to offer) banking services in a less commercial way than the private banks. Although now many countries have sold out/privatized their postal systems. https://en.wikipedia.org/wiki/Postal_savings_system

The postal savings systems are designed to help people get access to basic banking and bill-pay services. They may help expand access to these systems to those who might not otherwise have it. It is not the worst idea for a city to open one of these, though they would probably partner with an actual bank to help keep down technology and administrative expenses.

Tellingly, postal savings systems are not designed as a way for the government to get money for projects that no sane lender would underwrite. The real purpose of the proposals we see here is to make the government less accountable to taxpayers and reality so they can underwrite their fantasy spending schemes with free money from their own bank. The endgame is the bank's inglorious failure, a federal bailout, and incoherent ramblings about how this is all the fault of the evil capitalists who hate poor people.

That’s essentially what a credit union is. The depositors are members/shareholders, so there is less focus on profiting from fees. Much of the profit comes from loans back to the members.

I walked away from commercial banking almost 2 decades ago and never regretted it once. Credit unions are great.

More worrying, imagine if a city has some major economic downturn. A factory closes, an industry moves offshore, whatever.

House prices in that city go down, not everyone pays their rates, and everyone is looking to the local government to keep the economy ticking along while they wait for new businesses to take advantage of falling wages.

However, the local government bank has just written off a bunch of bad loans so the local government's credit rating has fallen off a cliff.

> However, the local government bank has just written off a bunch of bad loans so the local government's credit rating has fallen off a cliff.

...and, presumably, the Fed steps in and bails out the bank by buying up the bad loans.

Seems, from a politician's point of view, a much better option than having the city go into bankruptcy when they can get a bunch of "loans" from the Fed to keep chugging along. Moral hazard be damned.

That's assuming the Feds are going to do that. If they happen to be of the opposing political party at that time, good luck with that.

Keep in mind that the bailouts after the 2008 housing crisis were across the whole economy. If that many major banks failed, it would have had a cascade effect, and that was the argument used to justify it. But one bank, in one city? That could fail without anybody saving it and the rest of the economy would barely notice. Though the people in that city sure would.

To clarify, when grandparent wrote "Fed" he was referring to the Federal Reserve Bank, of which City-Run banks would be member banks. The Fed would be forced to prop them up or wind them down in an organized fashion in order to maintain the integrity of the payment system. Political considerations wouldn't really be a factor, and which party controlled the federal government wouldn't matter.

You're talking about two different things. After 2008 The Feds bailed out the banks by having The Fed issue them loans and buying up their toxic assets. It's less likely that would happen with only an individual local bank.

By contrast, when a bank goes out of business, the FDIC covers most of the deposits. But that doesn't end the same way for the bank. And if the bank is the city, the question then becomes whether they have to e.g. sell all of their real estate holdings and other city assets, or allocate their revenues from taxes to covering deposits, before the FDIC has to cover them. Meanwhile all the cronies who got loans for buildings they can't afford would suddenly find the loans owned by somebody else who would be more inclined to foreclose on them if they don't make the payments etc.

How do you mean? I was only clarifying that "the Fed" means the Federal Reserve Bank, when the person I responded to originally mistook it to mean "the Feds," which is a much more ambiguous term, but generally means some federal regulatory body or the political branches of the federal government as a whole.

You're obviously correct though that the real motivation for a city owned licensed bank is to move pension liabilities and maybe some other assorted boondoggles from the city's balance sheet to the bank's balance sheet with the intention of strong-arming the Fed into acting as a backstop just as it did for commercial banks during the financial crisis.

> There’s been some suggestion that these types of banks would lend to entities that might not otherwise be creditworthy

I don’t agree with this argument as this is already a huge problem in private and commercial banking. Loan approvals getting pushed through by bank execs for friends already happens quite a bit, especially in more economically depressed communities.

For a more publicly relevant anecdote, the current president defaulted on a loan he received from the real estate arm of deutsche bank, sued the bank, and then opened an account in DB’s private banking division which gave him a loan to pay back the debt he owed to the real estate division.[0]

The argument that public banks would somehow be less ethical than private banks, who’ve also been caught laundering money for cartels and terrorist organizations, is laughable.

0: https://www.nytimes.com/2019/03/18/business/deutsche-bank-do...

That's a completely different kind of problem. A bank president who steals from the bank has committed a crime and should go to jail, but one instance of an amount of money which is very meaningful to one person is peanuts to the bank.

By contrast, if you make net-loss transactions systemically as a matter of policy, your bank is going to go bust. Which is not going to please the depositors/taxpayers/FDIC.

I'm talking about POTUS, not the DB president. He's just one high-profile example of a bank lending to someone who wasn't creditworthy.

Not to mention We're only 10 years past the worst financial scandal of a generation, which was caused precisely by underwriting mortgages for people who couldn't afford them. 465 banks failed in the US alone during this period[0], the exact scenario they claim that the public would fall into.

The banks have absolutely no leg to stand on in terms of arguing that they alone can determine who should receive loans. They were the ones who blew up the economy 10 years ago and faced no consequences for it.

0: https://en.wikipedia.org/wiki/List_of_bank_failures_in_the_U...

Of course, the real question that needs to be asked is "if affordable housing isn't profitable, what do we do?" There are many things that we all want society to have that aren't profitable.

> Of course, the real question that needs to be asked is "if affordable housing isn't profitable, what do we do?"

Right, and that's a good policy question. But once you answer it, you no longer need a politician-operated bank.

For example, the main thing that makes affordable housing unprofitable is that artificial scarcity created by zoning rules puts the creation cost above the price threshold for what's considered affordable housing. So you have to fix that, but once you do, any ordinary bank will fund those now-profitable construction projects.

>For example, the main thing that makes affordable housing unprofitable is that artificial scarcity created by zoning rules puts the creation cost above the price threshold for what's considered affordable housing. So you have to fix that, but once you do, any ordinary bank will fund those now-profitable construction projects.

So, I agree with this, of course, but there's still an argument for subsidizing the 'affordable' projects first. - this argument is that even in the above case (where, I agree, eventually cheap (compared to cost of construction) projects will be constructed,) more expensive housing (larger, more luxurious) will be constructed first because it's more profitable, and building companies and homeowners will do all they can to keep less expensive units out of the market as long as they can (I mean, builders will switch once they can't sell any more luxury units, but homeowners won't, and more homeowners means more anti-building pressure.)

I think there's an argument to be made, in this case where the housing market has been so distorted for so long, for moving utilitarian, smaller-unit high-density construction projects to the front of the line. Luxury housing needs a lot less subsidies, but if you don't put something in to prevent your housing subsidies from going to luxury housing, your housing subsidies will go to luxury housing.

(removing restrictions on density isn't a subsidy, you say? tell that to the people who's houses will be worth less if we build enough of the small condos to satisfy small condo demand. If we do build enough housing, the average Californian will lose a lot of money due to the decrease in real-estate prices. Sure, it's not a a government subsidy, but changing the rules so that one group gains and another loses is going to be opposed by the losers.)

> more expensive housing (larger, more luxurious) will be constructed first because it's more profitable

Is this even true? You can put eight little studios with shared bathrooms and kitchens in the same amount of space as one big luxury three bedroom, and you get more rent from eight $600 apartments than one $4000 one. The reason the cheap little apartments don't get built is that they're explicitly prohibited by zoning (or implicitly prohibited by things like per-unit parking requirements that destroy the economics).

> I think there's an argument to be made, in this case where the housing market has been so distorted for so long, for moving utilitarian, smaller-unit high-density construction projects to the front of the line.

The problem is that this creates a massive discontinuity at the point where you go from "affordable housing" to market rate housing, and screws over anyone who can't get into "affordable housing" either because they're $200/year over the income threshold (even though still quite poor) or because the demand for "affordable housing" continues to outstrip the supply even for people who qualify for it. And the latter is necessarily the case until you actually build enough of it that it would cause market rate housing to become affordable anyway.

> more expensive housing (larger, more luxurious) will be constructed first because it's more profitable, and building companies and homeowners will do all they can to keep less expensive units out of the market as long as they can

That's almost entirely due to regulations that restrict density. For example, strict parking space requirements sharply limit the number of units you can build in a given parcel. If you are required by law to only let 10 people live on a parcel that could comfortably house 80, you're going to have to maximise the amount of money you get from those 10 people.

Repeal the laws that force developers to focus on luxury housing, and you'll get less luxury housing. It's not rocket science, and it works well in areas which have done so.

1) Give the poor enough money that housing will be affordable.

2) Subsidise housing directly.

3) Change regulations so building affordable housing will be profitable.

There's nothing fancy or unusual about housing. The poor might struggle to afford food, so we give them money (eg, via EITC) so they can afford food, we give them food directly (in the form of vouchers, such as food stamps) so that they have food, and we use industrial policy to ensure that food will be cheap and available, so they can afford food.

This works pretty well! Food is very cheap in the US, to the extent that many people suggest we've gone too far and made it too cheap and available.

Note that at no point does "invest city pensions funds in a slush fund to make loans to people wanting to build artisanal dairies" come up, because that's actually not going to solve the problem.

I'm left wondering how much benefit there is with public banks.

First, we already have not-for-profit credit unions and member-owned cooperative banks. Why does the bank need to be owned and run by the city?

I'm a big fan of credit unions. They offer a not-for-profit alternative to banks. However, when you look at their rates, they aren't some order of magnitude different from banks. They can often be better, but they usually aren't so far off because ultimately banks remain reasonably competitive.

I guess my question is: how would a city-run bank do substantially better than a credit union?

The article talks about trying to finance affordable housing, but one of the biggest impediments to affordable housing tends to be residents opposing it, not its financing. Even then, housing financing is a quite competitive market and the question becomes whether the city-run bank would issue riskier loans with less possibility of repayment. However, if the city lends with a lower repayment rate, that's just a subsidy. I think the government needs to spend on affordable housing, but this just seems like a way of doing it inefficiently (but sneaking it by taxpayers who don't notice it since the city isn't "deciding" to spend money on affordable housing).

Either you lend money at rates similar to what credit unions lend at for projects of similar risk or you decide to lend at lower rates or to riskier projects and lose money - essentially offering subsidized loans.

It sounds like advocates 1) dislike for-profit banks (and it can be easy to feel that way) and 2) want to lend to/invest in projects likely to have a bad repayment rate or worse returns, but fit something they want for other reasons. Really, it sounds like they want subsidized loans to substitute for grant money the cities won't give them.

Now, I think combatting global warming is of huge importance and I think we're facing an affordable housing crisis. However, I don't see a city-run bank as the solution to these problems.

Frankly, the reason it's a bad idea can be seen when one thinks about pensions. Why don't we have the public pensions of California invest in these socially responsible projects? Because we've made a commitment to those retirees and if we invest in underperforming projects, taxpayers will have to make up the rest - and there will be less money for all the good projects we want to accomplish.

There is an opportunity for a city-owned bank to offer benefits. If it's as efficiently run as a private bank, the city would essentially reap the profits from it. However, they could also reap those benefits from using a credit union. I guess I'm left wondering why advocates don't try and get cities to move their money to a credit union first. That's probably where I distrust their idea most. It feels like they want a city-owned bank because they think once the city spends millions setting it up, the city won't be able to back away from it and they'll be able to siphon money out of it for socially responsible projects.

I'm guessing that cities have explored credit unions. Seattle wanted to dump Wells Fargo in a 9-0 vote and found that no one else could really handle their business. Seattle tried many things including slicing up its business into smaller chunks and trying to court smaller banks.

It's also important to note that while cities have a lot of yearly revenue, it doesn't just sit in the bank to really be invested or lent. Seattle puts $3B through Wells Fargo each year, but has an average daily balance of only $10M. The article says that they "park" money in banks, but I don't think that's really the case (at least it certainly isn't in Seattle).

> However, if the city lends with a lower repayment rate, that's just a subsidy. I think the government needs to spend on affordable housing, but this just seems like a way of doing it inefficiently (but sneaking it by taxpayers who don't notice it since the city isn't "deciding" to spend money on affordable housing).

It does feel like that's the (mostly unstated) goal here.

We have that in Germany: https://en.m.wikipedia.org/wiki/German_public_bank

For day to day common needs Sparkasse are the most popular banks. Usually private banks will give you better offers. Sparkasse is big, slow, and burocratic. Maybe that is just the size though.

> Sparkasse is big, slow, and burocratic. Maybe that is just the size though.

It's not just the size, but also it's decentralized governance and high turnover. A friend of mine who worked for them as an independent project manager for some marketing related IT-changes had to travel all over the country to get buy-in from the regional Sparkassen-groups for the project. Mind you, those weren't some earth shattering changes, but nevertheless he was the ~7th PM on that project which had already been in the works for 3 years.

In addition to being big, slow, and bureaucratic, don't forget that they're also expensive, are bad at some very basic things like online banking, and don't have a wide array of products. (They're not so great at stock portfolios, for example).

Having lived in Germany, Austria, and the UK, I was shocked, upon arrival here, how thin the network of bank banches and ATM machines is, while at the same time cash plays a much bigger role than in other top-tier industrialized nations, and point-of-sales cashless payment systems seem like they are from the previous century. I don't know the extent of the stratistical facts around this anecdotal evidence, but I've often heard visitors from other top-tier industrialized nations comment in the same way (like visitors from the Netherlands, Scandinavia, etc.)

Sparkasse (the city-run public banks) are pretty much the only bank with a branch network that's dense enough that you can live in a suburb, exurb, or rural town and have a bank branch somewhere near where you live. The other banks have branches and ATM machines only in major population centers. All non-Sparkasse banks, taken together, have less than half the ATM machines that Sparkasse has, and Sparkasse exploits that fact by charging card-holders from other banks for cash withdrawals.

So, Sparkasse has a monopoly-like situation on the supply of cash, and considering how cash plays a way more important role than it does in the U.S. or other parts of Europe where cashless payment systems are much more prevalent, this is a very bad situation.

So, the net effect, in my opinion, is that, in Germany, taxpayer money is used to sustain a banking monopoly that makes it hard for private business to compete and creates a situation where the banking industry can sustain a price level that's higher than what exists in nations with a free market, to the detriment of the consumer/citizen. -- This really shouldn't be happening, in my opinion, in a country that sees itself as a free market economy and is often described as the economic powerhouse of Europe.

Also:

"(State-owned) German bank is dubbed 'dumbest' for transfer to bankrupt Lehman Brothers"

https://www.nytimes.com/2008/09/18/business/worldbusiness/18...

Like most progressive issues in the US these days, this issue has taken a lot of inspiration from Europe, notably in Germany where public banks have been around for a while. The public banks there help to fund infrastructure investments and renewable energy projects.

The recent effort in LA probably successfully pushed the issue the furthest, despite not passing the vote. It got the issue to resurface after the initial interest from the VC-funded weed startups.

Bob Hasegawa, a Washington state senator, has also spent a lot of time advocating for a public bank in Washington and Seattle.

Also, if you're interested in the nitty gritty of the recent LA vote - https://www.youtube.com/watch?v=ra4sgDlalgA is a great discussion with some of the organizers behind the effort.

The US federal government and the 50 US state governments have been deeply involved in banking for many decades -- as regulators. What would be new is for the government of a US city to become involved in banking.

Which leads me to ask you, Do any of the Kreise (roughly analogous to the county governments of the US) or the Gemeinden (municipal governments) of Germany operate a bank?

The Bank of North Dakota is a state owned enterprise. It operates ~$8B in assets. In 2017, it recorded record profits for the 14th year in a row. It survived the 2008 financial crisis and is serving its citizens just fine.

OK, but operating a bank is not particularly different IMHO from regulating the hell out of the banks with branches in your territory, which again all 50 US states have been doing for decades. (Very small US state governments with no particular opinions on how to regulate banks will probably have copied the regulations of a larger state government.)

My question was whether any European city operates (or regulates) a bank.

(I'm almost certain that at least some of the larger European and US cities run their own pension funds, but I want to know if the government of some European city offers bank-like services to people other than its employees.)

Sure. In Scotland for example, municipal banks are everywhere. North Lanarkshire, West Lothian, North Ayrshire, Clydebank, and East Dunbartonshire Municipal Bank all take deposits and lend to borrowers. They do everything you'd expect a commercial bank would do.

> Do any of the Kreise (roughly analogous to the county governments of the US) or the Gemeinden (municipal governments) of Germany operate a bank

Yes. In every place[1] either one or the other owns a public bank (although through mergers nowadays often two or three share one through a Zweckverband). See this list: https://de.wikipedia.org/wiki/Liste_der_Sparkassen_in_Deutsc...

[1]: Except Bremen, Hamburg, and some places in Schleswig-Holstein in which another kind of public bank exists.

There is a history of postal banking (1911-1967) and state-owned / territorial banks (North Dakota, Puerto Rico) in the US:

https://en.wikipedia.org/wiki/United_States_Postal_Savings_S...

https://en.wikipedia.org/wiki/Bank_of_North_Dakota

https://en.wikipedia.org/wiki/Puerto_Rico_Government_Develop...

Never mind "too big to fail", small banks are often "too small to succeed"!

Spain used to have a network of city banks called the cajas. They suffered from exactly the sort of cronyism people here are worrying about, and the financial crisis blew almost all of them away. https://en.wikipedia.org/wiki/Savings_bank_(Spain)

This is a horrible idea. Banks that operate based on the whims of the public are going to invest in stupid but popular projects that are doomed to fail. Popular ideas align poorly with financially-sensible ideas. Banks don't want to fund public housing and other social programs because they are risky and will probably lose money. A city like San Francisco is going to fund feel-good measures that are doomed to fail. Then they're just going to need to be bailed out, and the taxpayers are going to suffer.

On the other hand, banks that operate in private are likely to invest in stupid and unpopular projects that are doomed to fail.

Of course, in theory, private banks have incentives not to invest in projects doomed to fail, and the invariably upright careful professionals staffing them have similarly aligned incentives.

Which is why we can't think of any high profile examples of private banks needing to be bailed out by taxpayers, right?

> Which is why we can't think of any high profile examples of private banks needing to be bailed out by taxpayers, right?

Which says nothing about whether the frequency of bailouts would be much higher or not if all banks were government owned & operated. As bad as TARP was - while still earning a profit for the government - the government bank scenario may have been even worse. You can see examples in this thread of the incompetence of government banking in Europe, in Germany for example. If the Germans can't operate a government bank at a superior level, California's government would be an epic disaster.

Let the Post Office operates as a bank. City level bank has too small of a scope to be efficient. Post Office has the network, infrastructure, and branches in place that can easily expand into financial services. Japan's Post has banking service and it has work well.

Came here hoping someone would say this. Apparently the USPS used to operate as a bank 'way back in the day': https://www.nerdwallet.com/blog/banking/post-office-banking-...

That would help the unbanked, but would not help cannabis businesses or give the cities an entity through which they could invest funds in the form of loans.

It seems to me that a profitable bank is private, while an unprofitable bank magically becomes a public concern.

Couldn't they just go with a local credit union?

Probably not. As another commenter noted with Seattle, the needs of larger organizations often exceed the capabilities of smaller banks and credit unions.

Holding cash is easy. The backend processing—processing check deposits, sending checks, corporate cards, etc.—requires a lot of investment that most smaller banks and credit unions outsource. Wells Fargo and Bank of America have the benefit of having built all of this already.

> “When you’re backed by a city, you have a democratic constituency to hold the bank accountable,” said Sushil Jacob.

What does that actually mean in practice though? Several cities in the US have literally gone bankrupt. Sure, there's people that are "accountable" for that. Maybe some of them lost their mediocre little jobs or didn't get re-elected. So what?

As I see it, one of the major issues with banks recently is that they've all conglomerated into a few large ones, so there isn't much choice or competition anymore. (Chart: https://upload.wikimedia.org/wikipedia/commons/b/be/Graph_of...) Backing those industries with public funds has already led to them making riskier investments, as they know the public will cover their losses.

A public (i.e. subsidized) bank has no incentive or need to compete or appease its customers, so I fail to see how this would make things better and not worse.

Possibly relevant, Alberta Treasury Branches: https://en.m.wikipedia.org/wiki/ATB_Financial

If they are independent with a clear mandate like the Fed, then it can be decided on the mandate's merit. If it's an open-ended government controlled socialist bank, hell no.

This article fails to even mention the most important part of municipalities wanting their own banking system: Not giving money to banks.

In the early 2000s San Francisco found that we were paying we were paying (I think it was Wells Fargo) for the privilege of making interest off of us. We weren't making interest, but the fees were forever going up.

When we came within just a few votes of creating a bank, we miraculously got a better deal.

Considering that these big banks aren't really working in the public interest and are instead playing "too big to fail games" , any bank big enough for our business will never actually have any legal or moral incentive to act in our best interest.

Also consider the unbanked. America's banking system is the least fair in the world. Banks which use chexsystems to force poor people into the world of payday loan banking, just shouldn't have the right to federal funds, let alone local funds.

A Bank of California might make sense, and be a good place for the State and local governments to park their funds, in addition to offering private banking, so long as it has a mandate to be profitable.

A network of credit unions across the State to handle community finance and banking, that might make sense; it’s for residents or people of a particular class (police, students, teachers, or people who reside in a particular county) to park their accounts. I mean it’s essentially community banking with a shared interest group, and having enough of them endorsed by the State would take political pressure off the Bank of California to expand into areas which would be unprofitable.

Postal Savings Unions, as a kind of last resort for people who can’t open an account anywhere else, to encourage savings? Why not. As long as you don’t have to go through Congress, the State of California night even be able to enter into a contract with USPS to provide that for people here, and maybe even use the post offices around the State as a backbone for a new ATM network, better if we can eliminate ATM fees for these institutions.

Take all of these together, and you’ve got the workings of a pretty decently sized network of local, publicly interested banking and savings institutions and hopefully none of them too big to fail or too small to be profitable.

That said, city run banks? I love my city, as much as I complain about it, I grew up here, and I would not trust the Board of Supervisors to stake the creditworthiness of the City and County of San Francisco on a Public Bank. Doing it at the State level is still risky, but it might be a risk worth taking since California isn’t a monoculture much as our critics might think it to be, and that is a much larger pool of funds that wouldn’t be enriching large private national and international banks. There might be real savings to be had for taxpayers there.

I don’t believe that to be true about San Francisco. We might be bigger than North Dakota, but I think it is a poor fit for our city’s culture to get into banking. At least a credit union (there are several here already) funded by residents is a lot more insulated from our own political machinery, even if the constituency is mostly overlapping.

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