The Bank of North Dakota is the only state-run bank in the United States. Photo: Hulsing & Associates Architects
In 2008, dismayed by the role played by large, private banks in the financial meltdown, a group of Washington state residents began advocating for a state-sponsored public bank like the only state-owned bank in the United States, the Bank of North Dakota. When their movement failed to gain traction in the state legislature, they shifted their focus to Seattle. Today, the Seattle Public Bank Coalition educates local policymakers and the public about the capacity of public banks to provide robust banking services while returning profits to the community.
John Repp has been active in the campaign to start a Seattle municipal bank from the beginning. Last month I spoke to him via Skype about the benefits of public banking, the nature of local debate on the subject, and the state of the public banking movement in Seattle. Our discussion revealed what a practical solution public banking is for Seattle and other cash-strapped cities.
Tell me about the Seattle Public Bank Coalition.
In December 2008, I read an article in YES! Magazine by Ellen Brown, who had been writing about and leading the public banking effort in this country. My wife and I were members of a study group called Just Sustainable Economy. I talked to the group about it, and wrote letters to state officials. At that time, we were focusing on the state of Washington.
About a year later, I talked to Bob Hasegawa. He is a state representative from the 11th District. He already knew about the Bank of North Dakota, and knew about public banking. He asked me to write a bill—that was kind of scary. But I got a copy of the legislation that established the Bank of North Dakota, and I had some help from people in the national public banking [movement].
For five years we had bills in the Washington state legislature. The second year, I think, we had 44 co-sponsors, including the support of the Speaker of the House. But we couldn't get it through the committee. The chair of the committee was a centrist Democrat, and he wouldn't let it through.
So after five years—and with Hasegawa's okay—we decided to focus on Seattle and the Seattle City Council. There are nine [councilmembers], so we only had to convince five—instead of 51. There, we found Nick Licata to be our champion. He's been working with us for about a year. That's where we are now.
We've had different people in and out of our group over the last seven years. Some of the people who are not in Seattle have peeled away for now. But in the progressive community, [public banking] is a very popular idea.
I might add that one of the pieces of literature we circulate is from a group in California who puts out "Occucards." The cards talk about issues like climate change and debt. Interestingly, their public banking card—number 20—is the only one that focuses on a positive proposal.
And our local Occupy movement: when they realized that Seattle was banking with Wells Fargo, they went to the city council and put some pressure on them to at least more tightly regulate what the bank does with the city's money.
Frustration over Wall Street's role in the financial crisis has fueled the public banking movement. (Seattle PI)
Why public banking?
As you well know, the private banking system, based in Wall Street, nearly collapsed the world economy in 2008. A study of the economic history of Europe and the United States shows that this type of economic crisis happens at least once every generation. Actually, the longest time we didn't have one was after the New Deal, when our banking system was very tightly regulated. It was when they got rid of Glass-Steagall during the Clinton administration that the problems began.
That's the big background. I've been interested in the economy for a long time, but I didn't really understand the central role [played by] banking, and how it worked, and the possible abuses under the private system when not tightly regulated. And, of course, I think the banking system now is almost 20 percent of our economy. That's too big. Manufacturing used to be a lot bigger; now it's smaller, since we've exported jobs.
Forty percent of the banking around the world is done through public banking. We had a forum in December—you'll see some press reports from the forum on our website. [Thomas Keidel] came over from Germany and talked about the public banking system they have there, the Sparkasse savings banks. They're a full-service bank, where people can come and get savings accounts, checking accounts, and loans. They're a retail bank.
Our model, the Bank of North Dakota, is a banker's bank. One of our biggest [challenges is that] we've not been able [to convince] the community banking system that this would be a good thing for them. If they would look at the Bank of North Dakota, they would see that the Bank of North Dakota is like a Federal Reserve for the community banking system. It backs them up. [The community banks] are the ones that actually make most of the loans. Then the Bank of North Dakota either writes letters of credit, or buys the loans so that the community bank, which knows the customers better, can make more loans.
We want our bank to be run by bankers. It's not meant to be a lender of last resort. It's not meant to be a place where politicians get their favorite projects funded. It's meant to be a bank that would fund, for lower interest, projects for which the big banks would be happy to carry the loan.
Why is a public bank a good fit for Seattle, in particular?
JR: Seattle, like other cities, is strapped for money. We're the fastest-growing city in the country, and we need to build infrastructure to support that growth. We would also like to build more affordable housing, and create good family-wage jobs.
We are close to our debt limit. Because Seattle and Washington state have the most regressive tax systems, we're constantly having to go to the levy system to get more money, or borrow it. We've borrowed [billions of] dollars. Big banks, mostly, have bought those bonds—they loaned the money to us.
So even though Seattle is prosperous compared to Detroit, or Baltimore, it still has a lot of needs.
Unlike private banks, public banks directly reinvest returns and profits in public programs. Image: SPBC
How would a Seattle public bank work?
To start a public bank in Seattle, we would need a capital investment. We see that coming from the investments that Seattle already makes, mostly in savings treasury bonds and CDs. I think [they are valued at] about $800 million. We're only getting 0.67 percent [interest] on those investments right now—that's not much of a return.
We're thinking some of that investment money [could be used to start the bank]. It takes at least $100 million—but the more robust, the better. We could get a much higher rate of return through our own bank.
That makes the politicians a bit nervous. Our biggest opponent at the state level was the State Treasurer, whose job is to invest the money not immediately needed by the state. If there were a state bank, his office would shrink to a few employees, because the [public] bank would be doing that. He didn't like that. But that's not the reason he said that he was against it.
[It represents] a reorganization of how the city uses its finances. So the people involved in the way it's done now don't want to make the change, even though the arguments [in favor of a public bank] are pretty strong.
The deposits at the bank are the taxes and fees that come into the [city]. And, of course, Seattle has business-type activities. They have the water, and the utilities; they have a downtown garage, they have affordable housing. So the Seattle public bank would be another business-type activity.
It would be regulated by the state. The employees of the bank would be civil service employees—they would not be getting bonuses like the private bankers do. And it would be tightly regulated.
[Here's] the interesting thing about the Bank of North Dakota. People hardly believe this, but North Dakota did not suffer from the credit crisis. Their unemployment rate was about two percent during the worst part of the crisis. Of course, people now think it was the oil boom. But the oil boom came after the crash.
The [real] reason is that the Bank of North Dakota was standing behind the community banks. The Bank of North Dakota has been in business for ninety-some years. They were focused on old-fashioned conservative banking: loaning money to businesses that had a good plan; loaning money to farmers who needed to buy seed and fertilizer in the spring; loaning money to people to buy houses; and loaning money to students.
Old-fashioned stuff. They weren't involved in any of the derivatives, or credit default swaps, that Wall Street was pushing all over the country. And if you think about it, we don't want our bankers to be creative. We want them to be conservative. It's a conservative state, and it's a conservative model.
Even though we're seen by some of the politicians as radicals or reformers, we actually want the system to be more old-fashioned, more conservative.
Another thing: the loan portfolio of the bank. It could be done through the community banking system. It could be done through loaning money to other jurisdictions, like Seattle City Light or the water department, just like the bonds are done now. You put out the loan, and then the principal and interest comes back. The interest would be the profit of the bank. That would go either to expand the bank, or it could go back into the Seattle General Fund.
[For] the last few years the Bank of North Dakota has not returned money to the general fund of North Dakota. But from 1998 to 2008, it did return $300 million to the general fund. [Since 2008]—I believe because their infrastructure needs are so great, with the oil boom—the Bank of North Dakota has kept the profits, and expanded quite a bit. [It's become] one of the most profitable banks in the country.
We've talked to retired Bank of North Dakota bankers. And we talked to people from North Dakota who got their education [loans] through the bank—the Bank of North Dakota was one of the first that loaned money to students.
I'd like to hear more about the local debate regarding a municipal public bank.
At one point, Bob Hasegawa said, "When I talk to ordinary people, after a few sentences describing this idea, they say, 'That's great!'" And there are a fair amount of people from North Dakota living in this area, so they know about it.
But when you talk to politicians or policymakers, their eyes glaze over. We think it's because they know who the real power in society is: it's the bankers and the large corporations. They don't want to buck that power.
[Recently] I was at a city council candidates' forum for the two at-large positions. They were asked if they would support a Seattle municipal bank, and they all said yes—except the incumbent, Tim Burgess. He said he didn't know anything about the Bank of North Dakota. So we have some work to do with him.
What we are doing as SPBC right now is to try to get all the candidates for city council to learn about the bank, and endorse the idea. After our December 2014 forum, Nick Licata said the next step would be a request to Seattle City Council to get some money to study this. [But] that's been stopped. [Licata] told us that the legal department has some questions about it—whether this was legal.
So now they're working on the idea of Seattle taking some of its investment money and putting it in a fund to loan out to build affordable housing. But that would be what they call a revolving fund, and it would not have the leverage of a bank.
Among other things, the legal question [has to do with] three clauses in the Washington state constitution that say that the state cannot lend its credit—they don't say lend its money, they say lend its credit—to private parties. The case law on those three clauses [indicates that] if it's in the public interest, then it can be done.
The state and the city already loan money out to private parties, through the revolving funds. Again, they're not banks. But if you think about it, the bank would be loaning out the principal, and then receiving back the principal and interest—so it is in the public interest. Not to mention the jobs that would be created, the new businesses that could be created.
We think there's a strong case [in favor of a public bank being legal]. A former [Washington] Supreme Court justice agrees with us. (He's in private practice now, so he doesn't want to write a brief to that effect). We think the city or the state should go ahead and establish a public bank. There's going to be a challenge anyway, from the opponents. The private banking system really doesn't want any competition.
So that's where we are. The city council candidates are quite open, and if they don't know much about it, they'll ask, and be willing to learn. We have people in most of the districts who are showing up at the forums, and we have communicated with all of the candidates, and gotten some replies.
The public banking movement has gained ground in a number of US states. Graphic: PBI
Are you doing any outreach to the general public?
At the beginning, we went to a lot of Democratic Party district meetings, and we went to some church meetings. We even went to a Rotary meeting once. At some public events we leaflet and talk to people. It's pretty well-known among the progressive community, but that's a small community, unfortunately.
Other than our website, and leaflets, we don't have a lot of resources. We're not a 501(c)(3) or 501(c)(4), we don't have a lot of [resources]. It's an ad hoc network.
Is there anything you'd like to add?
There's a lot of residual anger about what happened to our economy, caused by the banks. And the fact that they were bailed out, and the people weren't. They convinced the president that the only solution was shoring up these banks, when that was not the only solution.
They could have nationalized these banks, they could have broken up these banks, they could have taken a lot of that money to start rebuilding our infrastructure, and start pushing us in the direction of getting off of fossil fuels. Of course, there was a lot of pushback from the banks and the oil companies.
But that's really where I'd like to see our country go, and the sooner the better. A public bank could help fund a green and sustainable economy. In Germany, they've made so much progress on rooftop solar. And they did it because of two things. One, you could get a mortgage to do that. Second, you would have an agreement with the local utility to buy back your power for twenty years at a certain price. So it actually costs you nothing; you end up making money right away.
That kind of situation could happen here, and a public bank could be part of that effort. The German manufacturing sector, which is very vital, has not exported its jobs all over the world. A lot of [the manufacturing companies] are smaller family businesses. From time to time they need credit, and they go to the [public banks]. We hear about Siemens, we hear about Mercedes Benz—the big companies. But the heart of German manufacturing is smaller businesses. And they have been able to survive, and to resist offers to sell to bigger corporations, because they have a public bank standing behind them.
Public banking advocates say Germany's network of state-run banks has allowed small manufacturers there to thrive. Photo: Wikimedia Commons
- Seattle Public Bank Coalition
- Public Banking Institute
- Ellen Brown's blog
- Occucard #20, "Public Banks"
- Bank of North Dakota
- Josh Harkinson interview with Bank of North Dakota president Eric Hardmeyer, "How the Nation's Only State-Owned Bank Became the Envy of Wall Street," Mother Jones, 27 March 2009
- Ellen Brown, "The Public Option in Banking: Another Look at the German Model," 11 October 2011
- Public Banking Institute, "Public Banking in Costa Rica: A Remarkable Little Known Model," 7 September 2014
- Ross Reynolds interview with Public Banking Institute executive director Gwendolyn Hallsmith, "What Are the Benefits of a Public Bank in Seattle?" KUOW, 10 December 2014
- Matt Stannard, "How Public Banking is Winning the West," The Indypendent, 19 February 2015