Commonly asked questions and answers about the Los Angeles Public Bank. For a deeper dive, visit our resources page.

The bank’s deposits will come from the city’s existing deposits. The City of Los Angeles holds billions of dollars of public funds in checking and short term investment accounts at commercial banks, which earns next to zero interest (and costs the city fees to manage!). Los Angeles currently pays $1.35 billion in interest and $340 million in banking fees yearly to big banks and investors. A public bank would house these deposits instead, putting them to work for Angelenos.

The start-up money to open municipal public banks is an investment in the future of our communities and local businesses — public banks amplify the effectiveness of public funds by returning money to our communities. A variety of sources can be tapped to start a public bank. Each municipality will determine which sources are most appropriate for the size and scope of its bank. Possibilities include appropriations from the local government’s budget, earnings from investment pools directed toward the public bank, bonds issued after a vote of citizens authorizes sales, grants from the federal government, and voluntary contributions by supporters of public banking.

Once the bank receives a California State Public Bank Charter, as authorized under the California Public Banking Act, it will be eligible to receive deposits from municipal departments and neighboring municipalities. AB 857 public banks will be able to accept funds from pension funds, socially responsible mutual fund investment vehicles and other institutional investors or in partnership with a local financial institution.

Credit card processing, account invoices, adjustments, fees, accounts payable.

Any sound business plan will require focus and detail on the complicated enterprise of running a bank. This means a feasible and trustworthy bank will be sure to ‘get it right the first time.’ This means starting with what’s most important, prove competence and capacity for more, and then add services as the demand dictates.

The most basic function the bank can provide is checking, credit card processing, and repo (liquidity) services for the city treasury. The public bank would work closely with city departments and agencies to smoothly integrate their accounts payable, receivable, merchant accounts, checking, wire, ACH and payroll services. It would work with the Office of Finance to facilitate the collection of taxes and the accounting and reporting of same.

Once the bank is managing deposits, it can begin to make loans and purchase interest-bearing assets. The bank would construct a portfolio of loans and investments according to its investing priorities and guidelines determined at its founding, and according to the direction off the Board of Governors. Loans made by the bank could be infrastructure loans made to the city, or small business loans made in partnership with community banks. Special loans could be made for important city priorities, such as for affordable housing or clean energy upgrades to city property.

The bank would likely serve as a ‘banker’s bank’ at first, providing liquidity and security for community banks looking for a powerful local partner to help face down large multinational financial institutions. It could provide clearing services and interbank liquidity.

After the bank has proven it can hold city deposits and earn a return on its loan portfolio while focusing on regional and socially beneficially investments, it can expand its offerings. By partnering with community banks, the public bank could expand access to banking services by providing extra security for partner banks, lowering the cost of banking for everyone. 

The City would collect and store revenue in bank accounts as deposits and continue to perform all of its regular activities. Merchant services would be brought in-house. The City can manage it at a much lower cost than commercial banks. Once the city builds up its reserve at the start, a public bank would not use tax dollars to fund its activities. Loans would be made by the bank and backed by city deposits, which will be properly insured and  guaranteed, and would not be at risk.

Municipal service providers, such as school districts and public utility commissions, will be the primary customers of the public bank. The Los Angeles will act as a “mini-Fed” for the region, assisting local banks and guaranteeing loans. It will be established as “banker’s bank,” meaning that it will offer loans in concert with community banks and credit unions. 

The Los Angeles public bank will partner with local community banks, credit unions, and CDFIs by lending for projects the public demands. When there are public banks, local banks will have greater lending ability and solvency. The public bank will initiate investment programs that align with economic development plans of the City of Los Angeles. For example: housing lending (especially affordable housing), enterprise lending (small and medium size businesses), and infrastructure spending will be determined by municipal goals that are financially feasible and environmentally sound. Public money will be recycled locally and not sent to distant shores.

The Los Angeles Public Bank will be governed like any bank, by a board of qualified directors chosen according to their reputation, financial knowledge, and their adherence to a fiduciary duty to advance the mission and soundness of the bank. In private banks, board members chosen are the largest investors and often earn millions of dollars for their time. In public banks, the ownership is the public, so elected representatives will play a role in selecting a board of qualified individuals with reasonable remuneration who will face far more accountability and transparency in their management decisions.

The governance of each public bank will be informed by input during the creation of the business plan, based on the following principles:

- The banks will be run by independent boards of governors made up of community residents together with experts in public finance, banking, affordable housing and climate change mitigation.
- By law, they will be strictly regulated by the state of California and the FDIC, and will operate under strict mandates to safeguard and grow municipal assets.
- They will be accountable to policies requiring them to act in the interest of the region and its people, and not individual shareholders or executives.

Within those guidelines, it will be up to each region’s elected representatives, banking experts, and the people to provide their input on what structure will be most conducive to financial soundness, while being sensitive to needs of the bank’s local area and upholding the social and environmental responsibility mandate of its mission.

Credit unions are great alternatives to the Big Bank Bullies, as the National Association of Federally-Insured Credit Unions characterizes Wall Street Banks. We strongly encourage people to do their banking with credit unions and local community banks. Credit Unions are owned by defined customer members, not private shareholders. Customers join because they know that their credit union is focused on providing them the best services, not on maximizing profits for distant shareholders. Credit unions are accountable to their depositors, and not the general public.

On the other hand, public banks are owned by governments so they are accountable to elected representatives. Public banks support credit unions and community banks by making joint participation loans, providing them credit, purchasing their mortgages and cooperating in other ways that make more capital available to them to provide low-cost consumer services. North Dakota, with its state public bank, has more credit unions and community banks per capita than any other state.

As public banks are banks, they are not restricted by rules governing credit unions enabling them to gain access to capital at lower rates with fewer restrictions on their lending than credit unions. States and municipalities have large revenue streams and reserves that can be invested most efficiently by public banks for affordable housing, climate-resilient infrastructure and support of small and medium sized locally-owned businesses.

Los Angeles currently faces a housing crisis with more than 400,000 households living in substandard housing conditions. Many Angelenos are forced to pay over 50 percent of their paycheck towards rent and utilities. L.A. has the highest national homelessness with 58,000 people living in the streets in 2017. It has been estimated that a 5% increase in rent would leave an additional 2,000 people homeless. Statewide in California, the median home price is more than 2.5 times higher than the median national home.

In his report, "Establishing the. Municipal Bank of Los Angeles: Conceptual Framework Los Angeles," public banking expert Karl Beitel believes public banks can help alleviate this crisis by making "loans to support affordable housing development, in the form of both construction loans and long-term bond and mortgage loans for multi-unit housing developments. A Municipal Bank could, over time, be expanded to become a significant supplier of long-term affordable housing credit . . . and fund a property acquisition program that would acquire existing rental properties and place them into permanently affordable cooperative housing arrangements and land trusts."

Beitel notes, "The primary advantage offered by a Municipal Bank is the creation of a dedicated, multi-purpose entity that combines a multitude of capacities required to identify, underwrite, and originate low-cost, high-impact credit, enabling the City to pursue more socially beneficial and economically just forms of economic development.”

Public banks offer a smooth pathway to funding, as well as an alternative to reliance on private investors and the private, for-profit housing market. They can help ensure that future housing development linked to publicly funded transit investments does not result in widespread displacement of residents that almost always occurs in predominantly African-American, Asian, and Latino working-class neighborhoods. This could also be done by co-lending with local private banks, as well as encouraging and back-stopping their investments in local housing initiatives

A city-owned bank could address the environmental crisis and reduce the impacts of climate change by financing clean energy infrastructure, increasing renewable-energy lending, and incorporating sustainability investment goals into city redevelopment plans.

The Sparkassen network of regional public banks in Germany has been instrumental in Germany’s green energy transformation. According to Wolfram Morales, its Chief Economist, 73 percent of investment in renewable energy came from the German public bank sector. Renewable energy accounts for 41% of energy production and consumption in Germany. In 2020, renewable energy sources accounted for about 13% of total U.S. energy consumption and about 20% of electricity generation. German public banks offer interest rates as low as 1% on loans, considerably lower than commercial bank rates.

Costa Rica’s worker-owned Banco Popular is another example of a publicly controlled bank funding environmentally friendly projects. The bank has financed sustainable water supply systems, residential solar energy panels, hydroelectric energy generation, and energyefficient retrofitting. Banco Popular also is a socially responsible investor, working with coops and public institutions, as well as unbanked and underbanked populations providing financial services to those neglected by the huge multinational banks operating in Costa Rica.

The Bank of North Dakota (BND) is a public bank founded in 1919 with over a century of profitable operation. The state-owned BND has returned record profits with a nearly 17% return on investment. It withstood the economic crash of 2008 because it does not engage in risky or unsound investments and lending practices. The Bank of North Dakota makes low interest loans to existing small businesses and start-ups, as well as below-market student loans. It partners with local private banks to provide a secondary market for mortgages and supports local governments by buying municipal bonds.

Not only did the nation’s only public bank survive the Great Depression and the Great Recession, during the COVID-19 pandemic, BND provided the largest per capita payout of Paycheck Protection Program (PPP) loans to small businesses of all 50 states. BND deployed capital quickly and efficiently to help small businesses get back on their feet.

Since the passage of the California Public Bank Act (AB 857), municipalities and regions in California including Los Angeles, San Francisco, the East Bay, San Diego, and the Central Coast have begun the process of formulating their public bank business plans. Many cities and states across the nation are pursuing formation of their own public banks. Advocates in New Mexico are working with legislative officials to create a New Mexico State Bank, as are activists in New York, New Jersey, Illinois, Maryland, Massachusetts, Mississippi and Washington. The cities of Seattle, Denver, and Chicago, Philadelphia, and the District of Columbia all have active public banking campaigns. Support for public banks has also transcended political divides. Democratic and Republican lawmakers in the State of Michigan filed a bipartisan bill to create a state public bank. North Dakota, the only state with a statewide public bank at this time, is a red state with not a single registered Democrat as a state legislator.

California local public banks will manage municipal agency funds so it is unlikely that they will receive deposits from individuals. Secondly, public banks will not have brick-and-mortar retail outlets to service individuals. However, we are working towards public banking options for the general public alongside our work to bank municipalities. In 2021, we co-sponsored the California Public Banking Option Act (AB 1177), which was signed into law by Governor Newsom. Upon implementation, the CalAccount program will provide zero-cost, zero-penalty bank accounts to all Californians. The act proposes a no-fee, no-penalty debit account enabling employers to make direct deposits when requested. Features include a debit card, automatic bill pay capacity and free ATM access. Additionally, CalAccount provides infrastructure to streamline public benefit payments and other disbursements to account holders. Once they come online, local public banks could potentially become a designated partner and hold CalAccounts. AB 857 public banks are generally prohibited from retail activity but can provide "retail" services like accepting deposits and making loans to other public entities if there are no local financial institutions that provide the same service at the same features, benefits, and terms in the AB 857 bank's jurisdiction.

Two existing workable models serve as inspiration for the Los Angeles Public Bank:

a) The Bank of North Dakota. The board for Bank of North Dakota has three elected representatives, the governor attorney general and Secretary of Agriculture. They set policy for public service interests. There is an advisory board of 10 to 12 bankers who serve in an advisory capacity. BND also has a chartered mission to serve the people.

b) Sparkassen of Germany. There 3 boards with their own separate elections. One third is elected is a regional parliament, One third is made up of employees who elect representatives One third is made up of people of the public who can apply to be elected who run for 4 years, and presents CV’s to prove economic expertise, who are then approved by banking supervisory authority. It will be up to Los Angeles’ elected representatives, banking experts and the People to provide their input on what structure will be most conducive to financial soundness while being sensitive to the local needs of the city and guaranteeing the upholding of the social and environmental responsibility mission.

Michael Brennan, a research at The Democracy Collaborative created a democratic design proposal for the Public Bank LA effort incorporating the Los Angeles Neighborhood Councils into the governance framework. There are currently 99 Neighborhood Councils in Los Angeles, each serving about 40,000 people. Read Constructing the Democratic Public Bank: A Governance Proposal for the Los Angeles Public Bank.

There is a great deal of interest in providing banking services for the millions of dollars spent on cannabis in California. Many legal distributors have no reliable means for the normal financial services needed to run a business. While public banks are often mentioned as a solution to cannabis business banking, as long as cannabis remains a Schedule 1 federally prohibited drug, they will likely not provide services to these businesses as it would be an impediment to gaining approval from the FDIC and Federal Reserve System. Federal law will have to change in order to protect those public banks who choose to serve cannabis businesses from potential prosecution. In addition, public banks are not chartered as banks to private businesses.

Among the opposition we often hear, "The public sector is notoriously inefficient and bureaucratic," "How can you expect that to run better than the private sector?," "What about corruption, abuse of power or wasteful pet projects?."

The bank will not be run by politicians, but by bankers mandated to serve the public. The governing structure of the public bank will not put politicians in charge—public officials will help set up the structure within the legalities allowed under the controlling legislation, but professional bankers, directed by accountable boards of governors, will handle all operations.

The Bank of North Dakota (BND), the only publicly owned state bank, is extremely profitable – more profitable than Goldman Sachs and JP Morgan Chase, according to the Wall Street Journal. It is very risk-averse, lends conservatively, does not gamble in derivatives, or put deposits at unacceptable risk. It is able to lend at lower than market rates because its costs are very low. It does not pay bonuses or commissions, has no high paid executives, nor shareholders bleeding off profits in the form of dividends. It does not compete with local banks, but partners with them, allowing them to become the front office dealing with customers and keeping the public bank’s costs low.

Public sector banks, while rare in the US, are common in other countries and recent studies have shown that they are actually more profitable, safer, less corrupt, and more accountable than private banks.

The California Public Banking Act (AB 857), the law that permits cities and counties to found their own banks, requires California public banks to obtain Federal Deposit Insurance Corporation (FDIC) insurance before the state will approve their charters. Public deposits will be collateralized according to the same rules that apply to all banks. Public banks will have to abide by all regulations that private banks are subject to and will receive the same benefits of deposit protection offered to private financial institutions.

People of all political persuasions have reason to support public banking. North Dakota, home to the nation’s only state-run bank, is a red state. Most of the state leaders are Republicans, yet there is overwhelming support for the Bank of North Dakota because it has helped sustain the state’s economy for over a century by providing low-cost loans to farmers, businesses, homeowners and college students. Conservatives also like the fact that the Bank of North Dakota contributes its profits to the state treasury reducing the need for tax increases.

California, a largely Democratic state, is the first state to pass twenty-first century legislation authorizing the chartering of municipal public banks. Californians see public banks as institutions that can help solve the state’s most pressing problems: preserving and creating affordable housing, supporting small businesses and financing infrastructure improvements that can address the climate crisis.

Public banks are accountable to the communities they serve, so investment decisions will reflect the desires of the majority of residents taking into account concerns of all, ranging from conservative to progressive.