Endorsed by the Metropolitan Mayors Consortium*
How Cities Benefit from Municipal Banks
- Fund infrastructure, affordable housing, and other public-benefit projects at lower interest rates and fees than conventional Wall St financiers – saving taxpayers across Oregon hundreds of millions of dollars.
- Invest the bank’s “profits” locally rather than enrich private out-of-state shareholders.
- Partner with community banks and credit unions to increase their lending capacity and programs – particularly to historically underserved communities.
Oregon cities pay hundreds of millions of dollars in interest and fees on money they borrow from Wells Fargo, US Bank, and other big banks. A lot of that money ends up lining the pockets of big bank CEOs, and shareholders rather than getting reinvested in our communities. With public banks all the money is kept local, and profits are reinvested in the community.
Cutting the Cost of Infrastructure by 40-50%
Our analysis of Milwaukie’s 2018 SAFE infrastructure bond indicates that funding through a municipal bank would have saved that city around $5 million in interest, plus provided another $3 million in income that would have increased the bank’s assets. That’s $8 million that a municipal bank could have made available for other infrastructure projects or economic development needs in the city of Milwaukie alone. If cities around Oregon had access to less expensive bonds, Oregon cities could collectively save hundreds of millions of dollars.
Supporting a More Robust Bank Environment
Public banks serve an important role for economic resilience and stability. Prominent examples include the Reconstruction Finance Corporation that funded New Deal job programs and helped pull the country out of the Great Depression, and the public Bank of North Dakota, which has given rise to one of the most robust banking environments of any state and helped that state weather economic downturns better than other states.
Partnering with Credit Unions & Local Community Banks
A municipal bank will increase credit unions’ capacity to make commercial loans in the aggregate by purchasing commercial loans from credit unions. It will also allow credit unions to originate larger loans by being a participant in loans that exceed the credit union’s commercial lending authority. While credit unions already engage in loan participation practices, a municipal bank will be a ready and agile partner in this process to increase credit unions’ commercial lending capacity.
Providing Lending Programs that serve Community Values
A municipal bank isn’t driven to make a profit for shareholders, so it can create lending programs administered by local community banks and credit unions that reflect community values, such as low-interest loans for cooperatives, locally-owned farms, small businesses, minority-owned businesses, and affordable housing projects, as well as home loan programs for traditionally red-lined communities, low-interest students loans, and other lending that for-profit Wall Street banks don’t find profitable.
HB 2743 would:
- Formally establishes and defines the term “municipal bank” in Oregon’s banking statute.
- Clarifies that FDIC insurance is not required as municipal banks won’t accept consumer deposits.
- Clarifies how munibanks can serve as a depository for public funds. For every dollar of deposit and loan repayment, the bank’s capacity to make loans increases several fold!
- Ensures separation between a local government and municipal banks by prohibiting cities from being stockholders or covering bank debts. Once created, a municipal bank must stand on its own without any financial ties to a city. A municipal bank is run by banking professionals, not politicians, according to the public mission as defined in its charter.
- It does NOT allocate state revenues. It is revenue neutral.
- It does NOT create new state agencies. Munibanks are regulated by the same agency that regulates other banks in Oregon.
- It does NOT put any new requirements on cities. Cities don’t have to create municipal banks.
- It does NOT give any new powers to cities. Oregon cities already have the power to create municipal banks. It simply provides clarification if they choose to do so.
Common questions about municipal banks
A municipal public bank is a bank chartered and capitalized by one or more cities to provide banking services for the benefit of the public. Public banks are established by cities but independently managed by banking professionals and a Board of Directors.
For most cities, a municipal bank’s initial focus will be to enable loans to local businesses in partnership with credit unions and community banks, thus creating jobs and increasing tax revenues. While municipal banks would not participate in risky or speculative loans, many of these loans are ones that Wall Street banks are not interested in making and credit unions and community banks are unable to make on their own.
After the bank builds sufficient assets, it can finance public infrastructure, public housing and other projects that will benefit cities, couties, school districts and other governmental entities. Cities and taxpayers will realize substantial cost savings on public projects and city business through lower interest rates and fees compared with conventional Wall Street financing.
A key feature of our bill is that public banks will not be required to take deposits from or make loans to individuals. This focuses the bank on commercial and governmental banking, allowing credit unions and community banks to continue serving individual retail customers without competition. It also makes it faster, easier, and less costly to create a bank because it is unnecessary to have FDIC insurance.
The biggest benefit of a public bank is a more vibrant local economy created by infrastructure loans and loans to local businesses. A public bank enables more loans in the community by investing locally and by partnering with local credit unions and community banks, increasing their access to funds at lower cost and enabling them to make more and larger loans.
Public banks can also fund infrastructure, affordable housing, and other public-benefit projects at lower interest rates and fees than conventional Wall St financiers, saving as much as 40% to 50% over the life of a 30-year bond. This is a big saving of taxpayer dollars.
Interest and fees earned by the municipal bank stay in the community instead of going to corporate executives and shareholders. This increases the Bank’s assets, which enables its local partners to make more loans in the community.
The short answer is No. The long answer is that many loan programs backed by municipal banks, such as for local businesses, would be administered by community banks and credit unions. A business-woman going to her credit union for a business loan might never know that the loan she is getting is in partnership with a municipal bank. Rather than compete with credit unions, a public bank expands what credit unions can offer their customers and helps them grow and be more competitive. [More Info]
While cities can create public banks, HB 2743 would add definitions and clarifications to state statute that would clear a path for cities that might otherwise hesitate to take advantage of the opportunity because of fears of legal challenges that would then require clarification by the courts or the legislature.
There are various options and different cities will do it in different ways. And cities will learn from each other. Indeed, several cities may work together to start a regional public bank. We have several ideas for how to capitalize a municipal bank, however that is not addressed in the bill, and we do not believe support for the bill should be premised on knowing ahead of time how different cities will choose to fund a public bank startup. [More Info]
While it may seem that there are more immediate concerns than creating public banks, it’s important to think of our long-term needs. With federal help from Washington becoming less reliable and Salem less able to provide help, Oregon’s cities can develop ways to help themselves. If we had public banks now, our communities would be in better shape to address the pressing needs of today. We can’t go back in the past, but we can take steps now to prepare our cities against the crises of tomorrow, and it takes very little effort today to show support for cities across Oregon who want to employ this tool for economic stability and resilience. The sooner we get started, the sooner we will have public banks available to help build a thriving economy and make us more resilient to respond to future economic shocks.
* Endorsed by the Metropolitan Mayors Consortium representing mayors from:
- City of Beaverton
- City of Canby
- City of Cornelius
- City of Durham
- City of Fairview
- City of Forest Grove
- City of Gresham
- City of Happy Valley
- City of Hillsboro
- City of King City
- City of Lake Oswego
- City of Maywood Park
- City of Milwaukie
- City of North Plains
- City of Oregon City
- City of Portland
- City of Rivergrove
- City of Sherwood
- City of Tigard
- City of Troutdale
- City of Tualatin
- City of West Linn
- City of Wilsonville
- City of Wood Village