When you pay state and local taxes, parking fees and other payments to your regional government, chances are those funds will almost immediately end up in a corporate bank.
Until recently most of these payments to the city of Los Angeles were held by Wells Fargo, a bank that has routinely paid out millions in fines and settlements due to predatory lending, foreclosure abuses and defrauding investors. Although the Los Angeles City Council voted in December 2017 to divest from Wells Fargo, the city must still use the banking services of JP Morgan Chase and Bank of America. That’s in large part because the city has lacked the option of chartering its own public banks.
That changed Oct. 2, when the California Public Banking Act was signed into law by Gov. Gavin Newsom, making it explicitly legal for municipalities in California to create their own public banks and use those banks to hold and leverage public funds.
The question at the heart of public banking may seem technical but is actually about political power. Should small groups of wealthy corporate board members get to decide how to leverage public money so that they may further enrich themselves? Or should public funds be used in a way that is accountable to the public itself, for initiatives that will secure the long-term health of society at large?
To date, the only publicly owned banks in the U.S. are in North Dakota and American Samoa. But now California, which has the world’s fifth largest economy and is known for setting national precedents and having its policies emulated by others, has opened the floodgates by permitting the creation of public banks.
So instead of propping up oil pipelines, public money could catalyze a rapid transition to a zero-carbon economy. Public banks can also drastically reduce the cost of financing infrastructure projects, because if the lender is a public bank, interest payments can be re-used for public benefit, rather than to enrich investors.
The Los Angeles City Council voted to divest from Well Fargo in late 2017, following grassroots mobilization against the bank. The movement that spearheaded that action, also played an instrumental role in advocating for the California Public Banking Act, along with a coalition of other cities and regions that formed the California Public Banking Alliance.
What happened in Los Angeles proves it is possible to create a society where the public determines its goals and sets its own financial strategies for achieving them.
Aaron Fernando is a writer based in Ithaca, N.y., who covers local movements, new economy initiatives, and financial innovation.
