At its Jan. 25 council meeting, the Culver City council received a presentation on a possible public bank in Los Angeles. While the concept has not been set in stone, Vice Mayor Daniel Lee was intrigued by Culver City’s potential participation in a public bank. The group that gave the presentation was aptly titled ‘Public Bank LA’
Public banks are banks that are owned by a municipality or group of municipalities, and follow different guidelines than traditional private banks.
The main benefit to participating in a public bank is having more agency over the city’s funds. This idea particularly translates through the transparency of funds and the efficiency of money services.
For the first point, because banks are mutual benefit corporations that do not have public stocks and are entirely controlled by the municipality.
Private banks invest surplus funds into projects you have no control over, and these projects may be against the city’s principles.
For things like bond placements, debt services, interest, etc., municipalities have been notoriously overcharged through miscellaneous fees.
In a recent bond purchase made by the city, over $200,000 of fees were incurred on a bond of about $1.9 million.
Additionally, public banks stand out from credit unions in that they are able to participate in large scale programs ran by the Federal Reserve, giving Culver City a voice at the table in spite of its small size.
This point has become more prevalent in the age of COVID-19, where the distribution of relief funds and stimulus checks to both citizens and businesses has hit their fair share of bumps in the road.
However, one state that has found resounding success in that process has been North Dakota. The reason? Well, it just so happens that North Dakota has their own public bank, giving the state more control and allowing them to distribute fund efficiently.
Having a public bank also famously got North Dakota through the 2008 credit crisis with far less damage than surrounding areas.
Of course, there are risks that are assumed with opening a public bank. The main obstacle that generally stands in the way of a successful public bank are operational costs.
On top of overall operation costs needing to be covered by the owners of the banks, fees are required to maintain compliance with state and federal law.
Assembly Bill 849, signed into law by the Governor in Oct. 2019, details the specific guidelines required to be followed to open and maintain a public bank.
While this bill sets regulatory guidelines, it also has provisions meant to curb the risks in opening a public bank. The presenting group suggested that an analysis of costs be done before leaping into the process.
Following the presentation, vice mayor Daniel Lee inquired about whether or not a large partner had been secured for the bank, to which the group responded that Request for Proposals (RFPs) would be going out in the summer.