- Cities and counties in California can now open their own public banks, under a new law California Gov. Gavin Newsom signed Wednesday.
- The Public Banking Act aims to help provide funding for projects that are in the public interest, such as affordable housing.
- California is the second state to enact such a law, joining North Dakota, which has had a public banking system in place since 1919.
Although the bill opens the state up to the creation of city-run financial institutions, it could take a while before any are operational.
Under the law, an agency requires voter approval before it can apply to the Department of Business Oversight to start a public bank. Agencies would also need to conduct a feasibility study and develop a business plan, in addition to obtaining collateral and insurance to protect investments.
"The public's money should serve the public's purpose, not line the pockets of Wall Street investors," Assemblyman David Chiu, D-San Francisco, the bill's author, told The Sacramento Bee. "This is about giving local communities the option to bank elsewhere and make our tax dollars work for our communities."
The Bank of North Dakota, the U.S.'s only public bank, was established in 1919 to help promote the development of agriculture, commerce and industry in the state.
Public banks help provide capital for much-needed public projects that wouldn't get funding elsewhere, advocates said.
"A lot of your economic livelihood would be, for lack of a better word, controlled by out-of-state interests who may not have the best interests of the local producers in mind," David Flynn, economics and finance department chair at the University of North Dakota, told Vox.
The California Bankers Association (CBA) opposes the legislation, arguing the bill could cause community banks to lose business in addition to putting taxpayer dollars at risk.
In a statement addressing the bill's passage, the trade group cited a survey of 600 people that found 60% of likely voters say they oppose the public banking measure and nearly 90 percent are satisfied with their current banking options.
"We remain opposed to the concept of public banks, and hope that community leaders and elected officials will take note of the risks associated with establishing a municipal bank, before opting to explore this unnecessary and unwanted public option," the CBA said in a statement.
Public banks are common outside the U.S., in countries like Canada, Australia, China and Germany. The Territorial Bank of American Samoa, a publicly owned U.S. depository bank, secured a charter last year.