A bill establishing a process for local agencies to create a public bank continues to move through the Legislature. Several amendments have been taken to more closely align private bank regulatory requirements to public banks. However, a few questions remain unanswered: (1) What need is not being met by private banks? And (2) How will the author/sponsor ensure that the public banks will be protected from political influence in their investments?
The author of AB 857, Assembly Member David Chiu, maintains that a public bank could invest in more community-minded projects like affordable housing, which more closely aligns with local sentiment rather than investments in fossil fuels. One of the main duties of a bank is to grow investments for its shareholders, or in the case of a public bank, the taxpayer. Affordable housing projects or low-cost small business or startup loans may not turn a profit for many years or may default. Private bank shareholders absorb the costs of defaulting loans, whereas, taxpayers will be responsible for public bank losses. Read More