Banking on the Public: Going Postal, North Dakota and Other Finance Alternatives

Hundreds of people seeking a roadmap for remaking the banking system gathered north of San Francisco in early June at Public Banking 2013: Funding the New Economy, a conference held at Dominican University, whose Green MBA program was a cosponsor. It was the second annual gathering sponsored by the Public Banking Institute (PBI)—the California-based nonprofit that is popularizing the idea of a North Dakota-style public bank.

A handful of fans of rightwing populist Ron Paul mingled with Occupy Finance folks, grizzled leftists, and middle-class suburbanites whose eyes were opened to the dysfunction of the financial system as they or their neighbors were foreclosed upon. According to PBI, 20 states currently have legislative advocates for state banks, a reform also backed by the think tank Demos, the Center for State Innovation in Madison, the Institute for Local Self-Reliance, and Gar Alperovitz, the author of America Beyond Capitalism who was a keynoter at the conference. The North Dakota bank, formed in 1919 after the farmer-backed Nonpartisan League took over the state legislature, holds the deposits of municipalities and the state government, and collaborates with small banks in the state on loans for small businesses and farmers. During a period when too-big-to-fail banks dismiss smaller loans as being unprofitable, this partnership gives community banks important backing, and indeed, North Dakota has more community banks than any other state. The public bank also generates a surplus that supports the state treasury.

Researchers from PBI, Demos, Institute for Local Self-Reliance and CSI all point out that North Dakota weathered the last bust better than most states not only because it is in the midst of an energy boom but because its public bank provides countercyclical support. The public bank operates on a longer time horizon, and ensures that public deposits are invested close to home, unlike public monies placed in Wells Fargo or JP Morgan Chase. Many governments use these larger banks because smaller community banks don’t have the capacity to handle their relatively large deposits. The state bank solves that problem.

Postal banks got a big boost at the conference when James Sauber, the chief of staff of the National Association of Letter Carriers announced that both his union and the American Postal Workers Union will partner with PBI in a campaign to reinstate simple checking and savings accounts in post offices. The U.S. Postal Service offered simple affordable banking services used by many working class people from 1911 to 1967 when the system was dismantled. “In the 1940s, 4.2 million American had accounts at the post office,” Sauber said. In other countries, postal banks remain important institutions, most notably in Germany, Britain, New Zealand (launched in 2002), Brazil (launched in 2000) and Italy, although Japan is beginning to privatize its postal bank, the largest in the world. The U.S. postal workers are intrigued not only by postal banks’ potential to offer social inclusion—28% of Americans don’t have full access to banking services—but also by the revenue generated that supports the postal system as a whole. “Don’t dismantle this institution—reinvent it,” he said.

The conference boasted another major announcement: The city of Reading, Pennsylvania is redirecting its deposits from big corporate banks and channeling them to local banks that will invest locally by working with a financial intermediary that will handle the relationship. This strategy was promoted by public banking activists in the state and Tom Sgouros, a progressive policy consultant and journalist based in Rhode Island, following PBI’s conference in Philadelphia last year.

The state bank idea faced a setback when the Boston Federal Reserve issued a report dismissing the idea after the Massachusetts legislature agreed to explore it. But with successful public banks operating around the globe, activists in California, Oregon and Vermont in particular are not letting naysayers slow them down.

The conference organizers apparently made it their aim to build left-right alliances. PBI President Ellen Brown’s 2008 book The Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free—won an audience among Tea Partiers with her analysis even while defending a government-run bank. The eclecticism—and at times wrong-headedness—was on display at the podium. After a Green Party leader opened the conference, Bill Still, who ran for the Libertarian Party nomination for U.S. president, told the crowd, “We need to get rid of the government’s ability to borrow…You need to reissue sovereign money.” His film, The Money Masters: How International Bankers Gained Control of America, was praised by W. Cleon Skouson, the John Birch Society-aligned writer championed by Glenn Beck.

Some activists also appear to believe that the public banks will push corporate banks out of operation. Occupy Finance member Julia Willebrand, the Green Party candidate for NYC comptroller, was sporting a “Break Up Big Banks” button, and was challenged by a PBI staffer who said the government wouldn’t have to do that because the state banks would remake the system. Of course, Germany has a whole system of public and cooperative banks that live quite happily without threatening Deutsche Bank and big finance. Indeed, after the recent crisis, Germany’s Left Party proposed a scheme for reducing the power of the corporate banks in favor of public and cooperative banks, acknowledging that it will be a long struggle.

In his plenary, Gar Alperovitz warned against “projectism,” falling into the trap that one initiative—for a public bank, say—can transform the system. “Can we get our heads around the notion that people like us…can transform and build an entirely new economy?” Those championing banking as a public utility cheered their answer.

Sources: Axel Troost and Philipp Hersel, How a Socialization of the German Banking System Might Look Like, (New York: Rosa Luxemburg Stiftung, October 2012); Ellen Brown, The Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free (Third Millenium Publishers, 2008); Amy Rapoport, The People’s Bank, American Prospect, April 1, 2013; Doug Henwood, Web of Nonsense, Left Business Observer, July 2009; Arthur MacEwan, “Should We Blame ‘Fractional Reserve’ Banking?” Dollars & Sense, May/June 2013.