Democratizing finance: the push for a public bank in Los Angeles

It was back in 2016 when community activist Trinity Tran and fellow members of her organization “Revolution LA” pushed the city of Los Angeles to divest their funds from Wells Fargo in response to the bank’s funding of the Dakota Access Pipeline.

Tran and her colleagues spent several weekends reading, writing, and even amending bank contracts on their own. Next to dropping banners and organizing city hall rallies, they also lobbied their points to the LA city council desk and to members of the office of finance.

“It wasn’t just about screaming through a megaphone, you have to be able to sit down and have coherent dialogue about how the process is going to get done,” Tran said.

Their efforts paid off. In 2017, “Revolution LA” got the city to divest $30 million of its funds from Wells Fargo. But they soon realized that divesting wasn’t enough. The public funds taken out would simply be stored in another too-big-to-fail bank.Hence, the idea for a public bank, run and managed by the city of Los Angeles, emerged.

Public banks are government owned entities that keep tax dollars circulating within the municipality. When cities or states collect tax revenues or other revenues, before going back in the form of salaries or funding for projects, it is usually parked in large private financial institutions.

In contrast to private banks, which are primarily beholden to profit margins and private shareholders, revenue parked in a public bank would be beholden to socially and environmental responsible mandates determined by local taxpayers.

It would theoretically act in a non-profit capacity to finance small businesses and local infrastructural projects, such as affordable housing and clean energy, on low interest rate loans and without the excessive fees of private banks.

On this November’s ballot, Angelenos will get to decide whether plans for a public bank should proceed forward.

“It wasn’t just about screaming through a megaphone, you have to be able to sit down and have coherent dialogue about how the process is going to get done”

DIVESTMENT THEN WHAT?

Inspired by the activists responding to South Africa’s apartheid regime in the 1980s, Tran and other activists saw how everyday citizens could force institutions to withdraw money from corporations and entities that were financing harm to people.

“The idea of divestment reemerged at Standing Rock as a way to prevent pipelines from being built because you can’t build pipelines if you don’t have money,” said Tran.

As it happened, one of the banks funding the pipeline, Wells Fargo, was also the main depositor for the city of Los Angeles’ funds.

“So out of our divestment campaign came the idea of public banking,” Tran said. “We realized divesting from Wells Fargo and moving our public finances to another too-big-to-fail bank wasn’t a real divestment.”

Similar to credit unions, public banks offer a competitive alternative to private banks. But whereas a credit union is in the business of making consumer-oriented loans, like mortgages, to its members, a public bank would operate to generate credit to fund commercial and infrastructural projects.

A public bank in Los Angeles, Tran and other proponents say, will help create a “peoples-driven” as opposed to a shareholder and “profit-driven” economic model.

Despite the divestment, Wells Fargo’s Los Angeles Region Bank President, Michael Ormonde, said in an email statement that his bank “remains proud to serve customers in the city of Los Angeles, and will continue to support the financial needs of our customers and communities throughout the city.”

Currently the Los Angeles city charter forbids public institutions from engaging in “commercial enterprises.”
In June, the LA City Council voted unanimously to put a measure on the Nov. 6 ballot, due in no small part to “Revolution LA.”

The measure is labeled Charter Amendment B. If Angelenos vote yes, it will remove that part of the city charter that forbids government entities from engaging in “commercial enterprises.”

A NATIONAL PUBLIC BANK OPTION

Los Angeles is by no means the only city where efforts are underway to introduce public banking. Similar campaigns in San Francisco, Oakland, New York City, and Washington DC have emerged since 2011.

Ellen Brown, founder of the non-profit Public Bank Institute, an advocacy group for a national public bank based in Santa Clarita, said that Wall Street has long held too much sway over the government.

Indeed, Wall Street spent a record $2 billion on lobbying and campaign contributions during the 2016 election cycle, up one-third from the previous election cycle, and the most spent since 2008. Banks like Wells Fargo, Citigroup, and Goldman Sachs were the biggest contributors.

“If we want our government back, we really have to get the power over our own finances back,” Brown said.

According to Thomas Herndon, an economist from Loyola Marymount University who specializes in macroeconomics and finance, the idea of socializing finance is nothing new.

“Financial institutions are quasi-public institutions because they provide this essential economic infrastructure that we can’t do without,” Herndon said.

“When you read the banking regulation from the New Deal era, that’s what they specifically characterize it as—this quasi public character.”Herndon said a public bank would make sense for Los Angeles.

“You have a bank that you keep the government budget and tax receipts in, and you use that to generate credits for infrastructural projects,” he said.

Thus far, there’s only one public bank in the United States: the Bank of North Dakota, which was started in 1919 by farmers who wanted low interest farm loans and an escape from predatory lenders.

Brown and other proponents say that North Dakota could be a model. They cite the bank’s consistent profits over the years as well as the fact that it’s the only major bank not to have gone bankrupt during the 08′ financial crisis.

And though North Dakota is an economy heavily based in oil, Brown said, their bank still churned out profits despite the oil crash in 2014.

“The state even hit up that bank for extra dividends when they needed it for their budget after the oil crisis.”

Another model would be Germany’s public bank system. “Half of their retail market are publicly owned. They’ll look at the business plans and work with the businesses.

They want these businesses to succeed. Whereas the type of usury system that we have, the banks don’t care if their borrowers fail,” Brown said.

OPPOSITION AND CONCERNS

But critics say public banks don’t have the financial wherewithal to sustain themselves overtime. Jack Humphreville, president of the DWP Advocacy Committee, said the risks of having a municipality run a bank greatly out-weigh any potential benefits.

“They think they’re going to save money on fees. But it cost money to save money on fees,” said Humphreville. “I think they don’t have the technology that, say, Wells Fargo has.”

The LA Times editorial board also jumped on board with their concerns, criticizing Amendment B as one of the most “ill-conceived, half-baked ballot measure in years.” The editorial pointed to the lack of a clear business plan as well as scant information on how the bank would be funded and to whom it would lend to.

“They have a point in that Amendment B is unclear”, Brown said. “But all the Amendment is doing is telling voters, ‘yes you can consider this.’ We’re not going to pass the thing until we’ve got a functional business model that’ll make and protect the city’s money.”

Humphreville is doubtful that a public bank could protect taxpayer money, much less make a profit. “The city hasn’t got a clue on how to manage a bank and the risk, to say nothing of the technology.”

THE FIGHT TO WIN OVER THE PUBLIC

Despite opposition, Trinity Tran and other fellow activists remain undeterred. She feels the level of energy and momentum on her side of the camp are increasing, not just in LA but around the country.

In response to critics, Tran is confident she’s got the facts to back her up. “Right now, we have about 5 billion that’s generated from our tax revenues and fees.

So the bank would be capitalized from money that the city already has, that’s sitting in Wall Street banks. What we’re doing is cutting out Wall Street as the middleman to keep our money here.”

But if a public bank is a real alternative to Wall Street, then why hasn’t there been any public bank, besides North Dakota, in the United States?

Herndon said that the reasons have been purely political. “I just think that there is a lot of ideological opposition to that in the U.S. Industry always thinks that. They’re scared of public competition,” he said.

Currently, Tran and “Revolution LA” are working in tandem with various activist groups, including indigenous activists and affordable housing advocates, to persuade the public of the social benefits of public banking.

“Our public finances don’t have to be siphoned by private banks that use our money to finance wars, pipelines, and private prisons”, Tran said. “We are in a moment where it’s rising in public consciousness that another world is possible.”

Benjamin Tran
Benjamin Tran is a graduate student in journalism at the Annenberg school. His interests are inequality, culture, and political economy.