[P2P-F] Fwd: California has legalized public banks. Should Illinois follow its lead?

Tue Feb 2 11:18:27 CET 2021

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From: The Lane Report <lanereport at marcjlane.com>
Date: Tue, Feb 2, 2021 at 2:58 AM
Subject: California has legalized public banks. Should Illinois follow its
lead?
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FEBRUARY 2021

As published in

California has legalized public banks. Should Illinois follow its lead?

By Marc J. Lane

Let's consider democratizing capital in Illinois and putting the public in
control of its own future.

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------------------------------

For just the second time in a century, a people-powered coalition
successfully overcame the clout of big finance when California’s Gov. Gavin
Newsom signed a bill late in 2019 allowing the state's municipalities and
counties to organize their own nonprofit lending institutions. Their
mission: to hold public funds and deploy them – along with money they’ll be
eligible to borrow at low rates from the Federal Reserve – for socially and
environmentally impactful purposes. Before long, such banks in California
and elsewhere will operate free of the pressure commercial megabanks face
to fund outsized executive pay packages while delivering healthy investment
returns to their shareholders.

Until California acted North Dakota has been the only state that operates a
public bank wholly backed by the deposit of government funds. The bank was
founded by community activists in 1919 to protect wheat farmers in the
state, then a banking desert, from predatory out-of-state lenders as well
as grain dealers who suppressed grain prices. Today the bank offers
residents and businesses low-cost services including checking accounts and
loans. More important, it funds economic development initiatives in
partnership with other local banks.

North Dakota's bank turns a significant profit – more profit, in fact, than
Goldman Sachs -- which is plowed back into the state's coffers and offsets
the financial burden its taxpayers, without the bank, would bear. So
everyone benefits from the government funds that would otherwise be
deposited each year in distant commercial institutions.

California’s cities have deposited billions of taxpayer dollars in Wall
Street's biggest banks every year which too often have been invested them
in private prisons, Saudi Arabian oil, derivative securities and other
assets deemed antithetical to the state’s values and policies. Worse yet,
the nation’s largest commercial banks, as a group, have justifiably earned
a reputation for exploiting unwary consumers.

But now, thanks to the efforts of a diverse group of labor unions, climate
justice groups and civil rights organizations, cities and counties there
will be able to launch their own banks to leverage public funds for local
impact. Although public banks will be barred from competing with commercial
banks at the retail level, they are expected to make low-cost loans for
renewable energy, affordable housing, small business expansion, transit and
other public needs, cutting the financing costs of infrastructure projects
in half.

Similarly, Chicago, Cook County, and other cities and counties throughout
Illinois might benefit from state-sanctioned public banks which could
invest in infrastructure, housing, schools and other worthy projects,
including those that private banks decline to fund. Public banks could also
unleash the state’s medical and recreational marijuana industry, denied
access to private banks because the possession or sale of cannabis remains
illegal under federal law.

Opponents of public banks have raised legitimate concerns about political
influence which could lead to corruption, self-dealing and risky lending.
But there's no reason community stakeholders can't actively participate in
the governance of a public bank ensuring the accountability the public
deserves.

Public banks inform a new and worthwhile discussion about sustainability
and growth. Let's consider democratizing capital in Illinois and putting
the public in control of its own future.

*Marc J. Lane is an attorney and financial adviser, and the author of "The
Mission-Driven Venture: Business Solutions to the World’s Most Vexing
Social Problems."*

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The Lane Report newsletter is a publication of The Law Offices of Marc J.
Lane, a Professional Corporation. We attempt to highlight and discuss areas
of general interest that may result in planning opportunities. Nothing
contained in The Lane Report should be construed as legal advice or a legal
opinion. Consultation with a professional is recommended before
implementing any of the ideas discussed herein. Copyright © 2020 The Law
Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole
or in part, is forbidden without prior written permission.

Reprinted from Marc Lane's March 5, 2020 editorial
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which appeared in Crain's Chicago Business. Crain Communication Inc.'s
permission is gratefully acknowledged. Copyright © 2020 by Crain’s
Communications Inc.

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