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A Quiet Revolution In US Banking Has Implications For New Zealand

11 February 2020

A quiet revolution in US banking has implications for New Zealand

As the dominance of the four Australian banks come under increasing scrutiny, and they continue to close branches and exit from our communities, the Public Banking movement might hold the answer.

There has been a quiet revolution happening in the United States as states and communities begin to wrest control of their banks from Wall Street interests. Legislation enabling Public Banks was passed into law in California, the world’s sixth largest economy, in October of last year.

With Public Banks, interest and profits belong to the community, and they are returned to the community. This is in direct contrast to the Wall Street model where money disappears from the community and ends up in the pockets of a very select few.

Public Banks are intended to use public funds to let local jurisdictions provide capital at interest rates below those charged by commercial banks. The loans could be used for businesses, affordable housing, infrastructure, and municipal projects, among other things.

Proponents say Public Banks can pursue those projects and support local communities’ needs while being free of the pressure to obtain higher profits and shareholder returns faced by commercial banks. Support for Public Banks also has grown since the financial crisis a decade ago and since Wells Fargo & Co. was embroiled in a slew of customer-abuse scandals in recent years.

Thirty of the fifty states in the United States have proposed legislation in support of publicly-owned banks with over fifty organizations promoting Public Banks. Mainstream media has however ignored this significant development in the American banking system.

Public Banking is not new in the United States as The Bank of North Dakota has been operating this way for over 100 years. The Bank was founded in 1919 to insure a dependable supply of affordable credit for the state’s farmers, ranchers and businesses. It makes low interest loans to students, existing small businesses and start-ups. It partners with private banks to provide a secondary market for mortgages, and it supports local governments by buying municipal bonds

All of the state’s revenues are deposited in the Bank by law with roughly 98 percent of its deposits coming from public coffers. The BND’s charter does not allow it to compete with local banks. Instead it partners with them, helping with depository, collateral, and regulatory challenges.

The Bank pays its dividends to its only shareholders — the people of the state. Over the past two decades, despite its small population, the Bank of North Dakota has reported record profits year after year, allowing it to return several hundred million dollars to the state’s general fund. This has helped it to avoid the drastic tax increases and cuts to vital public services suffered in other states.

Given that both the Labour and New Zealand First parties promised us capitalism with a human face, at the start of their current term in office, Public Banking may be an idea worth considering.


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