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As a credit union executive and public banking advocate, I am eager to provide another perspective on public banking than the one presented by Henry Meier last month in CU Times. Public banking is based on the premise that public money should work for the public good. When public money is placed in private banks, those funds too often leave the local community and fail to support local reinvestment.
I know well the important role that credit unions play in meeting the financial services needs of low-income people and communities. But Mr. Meier described public banks as competitors to, or distractions from, our vital work. This is false. Rather than compete with credit unions like mine, public banks would partner with us to increase our capacity to lend, grow and meet our communities' needs. This partnership model is effective precisely because it leverages the proven expertise of local lenders and the scale of public deposits.
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Public banking is not a new or untried idea. Hundreds of public banks exist around the world. Here in the U.S., the century-old Bank of North Dakota is a $10 billion public bank credited with spurring job creation and economic growth. In the bank's 2022 Economic Report, CEO Todd Steinwand wrote, "The success of BND is because of its partnerships with the local financial institutions that work tirelessly with their customers and deliver BND's programs. This relationship allows local lenders, who know the needs of their communities best, to spread their risk, and gives financial institutions of any size the ability to lend like the largest of their counterparts."
By leveling the playing field for small institutions, the Bank of North Dakota has fostered the highest rate of community banks and credit unions per capita in the country. This strong network of local lenders, in turn, has enabled North Dakota to weather financial crises and help distribute federal PPP loans to more small businesses during the COVID pandemic than any other state.
This is precisely why many New York-based Community Development Financial Institutions (CDFIs) – including Genesee Co-op Federal Credit Union, Lower East Side People's Federal Credit Union ($89.5 million, New York), Cooperative Federal Credit Union ($35 million, Syracuse), and Neighborhood Trust Federal Credit Union ($17.7 million, New York) – are fighting to bring public banking to New York. As credit unions serving low-income communities and historically-redlined Black and brown neighborhoods, we know that we need public support to achieve the level of investment and financing our communities need. Local public banks would leverage tax dollars collected from our own backyards to make loans in which small lenders can participate, to share the risk while advancing important community development projects.
The New York Public Banking Act (S.1754/A.3352) would create a safe and appropriate regulatory framework for local public banks in our state. The legislation won't create a public bank; rather, it will enable localities, such as Rochester or New York City, to apply for a special purpose charter for a municipal public bank. Public banks in New York will be charter-bound to reinvest in equitable economic development in low-income communities. And they will, of course, be subject to stringent regulatory requirements and oversight to ensure safety and soundness.
Nearly 30 years ago, the federal CDFI Fund was established during the Clinton Administration as a part of the U.S. Treasury. There were naysayers and name-callers then as well. But three decades later, thousands of successful CDFIs are operating in urban, rural and native communities across the country, and CDFIs enjoy broad public support across political and other divides. I was in a meeting recently where someone called those of us involved in the CDFI movement "trailblazers," and I was struck that back then people called us "troublemakers."
I believe that in the future, the same will be said about public banking in the U.S. It is not a "lousy idea" created by troublemakers. We are again blazing a trail because we are committed to equitable economic development in communities that have not been adequately served, even with all the dedicated efforts of credit unions and CDFIs. Public banking is an urgently needed approach whose time has come.
Melissa Marquez Melissa Marquez is CEO of the $37.7 million Genesee Co-op Federal Credit Union, a CDFI in Rochester, N.Y.
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