Solutions to the looming $450 million hole in the city budget have been narrowly focused on tax increases and cuts to essential services, but a public bank could change the conversation.
With democratic control, strict ethical standards, and public oversight, a public bank can be a source of revenue for the city and a key tool to combat the historic racism of the banks that dominate our lending markets, devastating Black communities. We’re excited to see Councilmember Derek Green has introduced the first bill in the country to create a city-owned bank.
Right now, big banks hold our tax dollars and invest them in the interests of their shareholders rather than the people of our city. Our schools, streets, and health-care systems are in desperate need. Black and brown communities still struggle to access affordable mortgages and business loans. We need a bank that invests our tax dollars back into our communities and generates reserves for crises like the current one.
Some people worry if city officials can be trusted with this task, but the fear is misplaced. There is one publicly owned bank in the continental U.S., the Bank of North Dakota, which has been in existence since 1919. There have been no scandals associated with that bank in a hundred years, and it returns tens of millions of dollars to the state whenever requested by its legislature.
Councilmember Green’s bill explicitly makes the bank subject to the city’s Ethics Code. That means, under Code Section 20-607(1), that no one associated with the bank — officers, employees, or city officials — is allowed to receive benefit from any bank action. Specifically, no person associated with the bank may “be financially interested in any ... award, contract, lease, case, claim, decision, decree or judgment made by him in his official capacity, or by [the bank].” There are stiff penalties for breaking this rule that are routinely enforced.
The structure of the bank itself provides safeguards, particularly the composition of the board. The board must include six members who have provided long service in the pursuit of racial, economic, and environmental justice. Banking interests on the board are limited to local community banks, credit unions, and Community Development Financial Institutions. Board members are barred from making profit for themselves, charged instead with acting in the public interest.
» READ MORE: Does Philadelphia need a public bank? | Pro/Con
Compare that with the kinds of banks in which the city now places its money and its trust. Wells Fargo has been fined billions of dollars for fraudulent behavior. Indeed, the city recently took Wells Fargo and other banks to federal court for cheating on interest rates, stealing hundreds of millions of our tax dollars. It also just settled a suit against Wells Fargo for redlining our Black and brown neighborhoods, one of the most harmful financial practices ever perpetrated against racial minorities. For too long, systemic racism has robbed Black and brown families and communities of their ability to accumulate wealth.
According to the Brookings Institution, median white families have nearly 10 times the wealth of median Black families, a gap that is the child of decades of redlining. There are different kinds of theft. Redlining is theft on an epic scale, affecting every Philadelphian in ways large and small. The city has enacted reams of legislation against it, but the practice continues. When we remove the big banks as the primary source of credit for our neighborhoods, we can build credit institutions of our own, starting with a publicly owned bank.
In evaluating the claim that the city cannot be trusted, it’s important to understand that the alternative to local, municipal control is privatization. The same argument that suggests the city cannot be trusted with its own money implies that it cannot be trusted with a fire department, a streets department, public libraries, and other essential services that can, theoretically, be a source of corruption. We take our chances with that possibility because the private sector is more than capable of corrupting such services itself and because it also has no fundamental interest in fairness. We are responsible for building a system that makes equitable investments in our communities.
Let’s bring our money home. Philly needs a public bank.
Vanessa Lowe is co-chair of the POWER Economic Dignity Strategy Team. Stan Shapiro is vice chair of the Philadelphia Neighborhood Networks. Both are members of the Philadelphia Public Banking Coalition.