What is Public Banking?

Public banking is banking operated in the public interest, through institutions owned by the people through their representative governments. Public banks can exist at all levels, from local to state to national or even international. Any governmental body which can meet local banking requirements may, theoretically, create such a financial institution.

Public banking is distinguished from private banking in that its mandate begins with the public’s interest. Privately-owned banks, by contrast, have shareholders who generally seek short-term profits as their highest priority. Public banks are able to reduce taxes within their jurisdictions, because their profits are returned to the general fund of the public entity. The costs of public projects undertaken by governmental bodies are also greatly reduced, because public banks do not need to charge interest to themselves. Eliminating interest has been shown to reduce the cost of such projects, on average, by 50%.

Learn more at the Public Banking Institute

Who will set policy for public banks? Who decides whether to approve loans? How are decision-makers insulated from bribes and financial or political pressure?

The governing legislators or lawmakers—whether at the state or municipal level—would make general policy decisions about public banks (and would likely have an advisory commission to consult), but day-to-day decisions would be made by the banks themselves—governed by their charters and subject to transparency and administrative review. Read More in detail on how this works with an operating public bank, the Bank of North Dakota.

Will a public bank compete with local banks in the area?

Founded in 1919, the Bank of North Dakota’s mission is to “promote agriculture, commerce, and industry” and “be helpful to and assist in the development of… financial institutions… within the State.”BND functions mainly as a “banker’s bank” — meaning that most of its lending is done in partnership with local banks and credit unions.  Read more.

Comprehensive study by Cornell University strongly supports public banking model to finance needed infrastructure

WSJ Reports: BND Outperforms Wall Street

While 49 state treasuries were submerged in red ink after the 2008 financial crash, one state’s bank outperformed all others and actually launched an economy-shifting new industry.  So reports the Wall Street Journal in 2014, discussing the Bank of North Dakota (BND) and its striking success in the midst of a national financial collapse led by the major banks. Read how and why BND outperformed during a resession.

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