Wednesday, March 23, 2016

A Public Bank for Santa Fe

The following has been submitted to the Santa Fe New Mexican as an OpEd. They should publish it - we'll see. Over two weeks they said it would be published "in a few days." I give up will have another go at it. And, then they published it on April 24, with the title "Santa Fe could use a public bank."

A study funded by the City was released in mid-January. It both supported the feasibility of a public bank in Santa Fe and increased public interest in the idea. 

The Great Financial Crisis of 2008 followed unscrupulous behavior of Wall Street banks. Then Main Street was hung out to dry while the Federal Reserve Bank bailed out Wall Street. So, we might look askance at banks in general. 

Most of us have checking accounts at a bank, and our banks have checking accounts at the Fed. Let’s face it, we are stuck with banking. Bank loans account for most of the money in our economy. But, public banks offer a way for banks to serve the people instead of people serving banks.  

Public banks are not new. The Bank of North Dakota (BND) is a century-old, public bank that is an essential element of that state’s economy. In Germany public banks garner 40% of all bank assets. In other parts of the world public banks are common. 

My own skepticism toward a public bank turned to enthusiasm upon working with the Brass Tacks Team of Banking on New Mexico. We modeled the first five years of a hypothetical public bank. Also, we calculated the savings to the city of refinancing existing bonds and loans through our public bank. Independent of the City’s study, we showed that a public bank can reduce City borrowing costs significantly.

Generally, this is how our public bank could work. Our public bank would be the City’s bank chartered by the State. The City would own the bank as it would provide the capital to be leveraged for loans. The City would deposit its income in the bank and pay its bills from the deposits. We assumed $100 million in city deposits, $10 million in capital, and a $50 million loan portfolio. These amounts are consistent with City assets and liabilities reported for FY 2014.

Over the five years our model yielded $10.5 million in profits and reduced City debt by $4.85 million.

A public bank would operate like any other bank except that profits would go back to the people.

The bank would minimize its own expenses. It would not handle individual citizen deposits. And, it would use neither tellers nor ATMs. The bank staff would be few and other overhead would be austere. Employees would be hired and paid by the bank not by the City.

Bill Black’s book, The Best Way to Rob a Bank is to Own One, along with prevailing public sentiment tell us that the City will not manage the bank. The City Council’s role is to approve City borrowing. Banking professionals would operate the bank day to day with an appropriate oversight board.

A bank depositor is an unsecured creditor of a bank. To be a safe haven for City deposits the bank must make conservative investments of its assets. Not founded to satisfy private investors, our bank need not take risks to chase high profits. 

Our bank would offer the City an alternative to expensive, omnibus bonds and provide transparency to funding. Instead of large bonds, the city could take out loans for individual projects as needed.

When the local lending environment improves, the bank could cooperate with community banks and other lenders for local development efforts.

Our bank would return to the City interest on loans that would otherwise go to private investors and Wall Street. It would provide a safe haven for City funds against the turbulent environment of private banking. And, it would provide better transparency of City spending. 

Like BND a Public Bank for Santa Fe would aspire to make a significant impact on the prosperity of the local economy.

Thanks to other team members, Nichoe Lichen, Elizabeth Dwyer for comments on this article. provides more information.

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