Public Banking Legislation Introduced in the House of Representatives

A bill that would allow for the creation of public banks in the United States was introduced in the House of Representatives last week.

Congresswomen Rashida Tlaib (D-Michigan) and Alexandria Ocasio-Cortez (D-New York) introduced the Public Banking Act, which allows for the creation of state and locally administered public banks by establishing the Public Bank Grant program administered by the Secretary of the Treasury and the Federal Reserve Board which would provide grants for the formation, chartering and capitalization of public banks.

Public banks can offer lower debt costs to city and state governments, fund public infrastructure projects, and encourage entrepreneurship by providing loans to small businesses at lower interest rates and with lower fees. 

The legislation also creates a pathway for state-chartered banks to gain federal recognition and recognizes a framework for public banks to interact with Fed accounts, postal banking, and digital dollar platforms.

“The history of public banking in the United States is one of twentieth-century grassroots demands and pressure to reform finance,” said Christopher Shaw, author of Money, Power, and the People: The American Struggle to Make Banking Democratic (University of Chicago Press, 2019). “Yet this history has too often been forgotten. Earlier generations of Americans knew that banks generated inequality in their society and often ripped them off as individuals. Working people successfully pushed for reforms that tamed Wall Street and set up public banks such as the Bank of North Dakota and the U.S. Postal Savings System. We are past due for a renewal of grassroots banking politics. Civic activism prompted the creation of public banks in the past, and proposals like the Public Banking Act bode well for our future.” 

The authors of the legislation said that the passage of The Public Banking Act would provide a much-needed financial lifeline to states and municipalities, as well as unbanked and underbanked residents, that have been left in dire straits by the COVID-19 pandemic.

The legislation allows the Secretary of the Treasury and the Federal Reserve Board to provide public banks grants for bank formation, capitalization, developing financial market infrastructure, supporter operations, covering unexpected losses, and more without the requirement to provide matching funds.

It also allows the Federal Reserve to charter and grant membership to public banks, and in conjunction with the appropriate federal agencies, establish a separate regulatory scheme with respect to these.

It establishes a public banking incubator program to provide technical assistance to public member banks to develop technologies, practices, and data that promote public welfare.

And it establishes new liquidity and credit facilities at the Federal Reserve to provide direct federal support to state and local public banks and their communities;

The bill prohibits investment in fossil fuel projects.

“We spent $30 trillion in the global crisis from 2007-2009 propping up financial institutions that held the country hostage for their reckless behavior. Only $8 trillion dollars has been committed thus far in the COVID-19 pandemic,” Congresswoman Tlaib said. “These banks have been, are, and will continue to depend on the public dollar. It is time for this relationship to be reciprocated and have the banks work for the people. It’s long past time to open doors for people who have been systematically shut out and provide a better option for those grappling with the costs of simply trying to participate in an economy they have every right to – but has been rigged against them. The COVID-19 pandemic has also plunged city and state governments into a financial crisis unlike any other they’ve ever experienced – and public banks could offer a much more tenable option for dealing with their debts at a time when they need it most.”

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