Should California Create a Public Bank?

Photo by Micheile Henderson on Unsplash

Nearly 200 local and national banks operate more than 6,500 branches in California. But lawmakers believe the state needs one more. A bill in Sacramento establishes a public bank with “a zero-fee, zero-penalty public option for basic financial services.”

Assembly Bill 1177, the California Public Banking Option Act, would create BankCal. BankCal would strengthen “the financial stability of the state’s most vulnerable residents,” “unbanked and underbanked,” who tend to be minorities, and “pay proportionally more for their financial services, lack secure means of saving, have fewer opportunities to build credit, and are rejected for loans at far higher rates.”

Assemblymember Miguel Santiago, AB1177’s author, says money saved by BankCal customers avoids “exorbitant fees” at retail banks and “could be used for food and rent or rebuilding from the economic devastation wreaked by the pandemic.”

Is Santiago, a Democrat from Los Angeles, at the cutting edge of an overdue banking revolution? Opinions vary.

“When the government owns the banks, lending decisions become increasingly driven by politics rather than economics,” the Cato Institute says.

It’s a valid concern. When government duplicates or replaces private businesses, the outcomes are undesirable except for those running the public programs, the politicians who instituted them and the chosen beneficiaries.

Think of Fannie Mae and Freddie Mac, the “quasi‐​public banks at the federal level,” says Mark A. Calabria, the Cato paper author. Their recent history “illustrates that mismanagement and corruption are alive and well at the intersection of the public and private.”

Public banks’ ability to provide credit to borrowers turned away by private banks is a common argument among supporters. It might be more bug than feature, though. Hester Peirce of George Mason University’s Mercatus Center pointed out that “the 2007-9 (banking) crisis demonstrated, encouraging lending to customers who cannot repay imposes terrible human costs.”

The “implicit government backing” private banks rely on to offset poor business decisions is already a taxpayer burden. It’s only a portion of the liability that would be generated by public bank losses.

But maybe we’re not talking about a public institution at all. Trinity Tran, co-founder of the California Public Banking Alliance, denies that BankCal would be a government-owned bank. BankCalNow claims that AB1177 “does not create a new bank.”

“Instead it creates a statewide retail banking option through which every California worker can access zero-cost financial services.”

It’s hard to defend these statements. While the word “charter” is nowhere in the bill’s text, it does “establish the BankCal Fund in the state treasury” and “make moneys in the fund available upon appropriation by the Legislature.”

It further says BankCal’s board can “accept, for deposit to the program fund, any grant, gift, legislative appropriation or other moneys from the state, a unit of federal, state or local government.”

As Chime, Ally, and other online services have demonstrated, banks don’t need four walls to be a bank. Nor does BankCal have to be perfectly modeled on traditional public banks.

Should AB1177 become law, California would not be the leader in public banking. North Dakota has a state-owned, state-managed bank. It’s no pioneering enterprise, but rather a relic of antiquity. Public financial institutions such as the Bank of North Dakota were common in the 1900s, and “they all failed miserably,” says Calabria, “and at great expense to the taxpayer.”

And of course, “they were also magnets for corruption.”

Two years ago, a task force compiled a “thoughtful analysis of the financial costs and benefits of creating a municipal bank” in San Francisco. It did generate some startling numbers.

Depending on the model chosen, it would take between 10 to 56 years for a city bank to break even. It estimated that startup costs, operational subsidies, and capital investments – depending on the model chosen would be $184 million, $1.6 billion or $3.9 billion.

Lawmakers should look hard at both sides of the cold, hard ledger sheet. Just in case one side doesn’t add up.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

This article was originally published by the Pacific Research Institute.


  1. The govt can not operate a business. Every time they try they fail and cost the taxpayers a fortune

    • Boris Badenov says

      The government IS a business and it’s an utter FAILURE. This will be yet another black hole of graft and corruption and endless taxpayer dollars flowing in.

  2. The Captive says

    Why? Let damn-Dems control even more of our hard earned money and then scam off of it? This is just another ploy to SOCIALISM isn’t it? This horrible party has failed the people who are legally here and of course will make sure the ILLEGALS GET A SHARE OF MONEY THAT ISN’T THEIRS.
    NO ! No to a state bank!

  3. Bogiewheel says

    Remember when California wanted a State bank to bypass the Federal law against marijuana.

    Money derived from harvesting marijuana was not legal to deposit
    In the Federal Banking system.

    Now we are to believe that the poor are in need, at cost to the tax
    payer. Sounds more like vote harvesting.

    They further want us to accept that the excess of “ exorbitant fees” will be eliminated.

    Would it not be better to lower or eradicate the radical taxes
    foisted upon the citizens by the pie-in-sky Socialist dreamers and their cabal in Sacramento.

  4. Joe Claypool says

    There is absolutely no efficiency in any government run institution. Why should we let the state do reckless, social. political acts with our financial system. The Fed is bad enough.

    • Boris Badenov says

      You are a master of understatement sir. It took the USPS a WEEK to get my quarterly tax payment from Campbell, to Sacramento. The schools are opening with so much convoluted nonsense it’s hard to follow from day to day what is going on.

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