This week on Upzoned, host Abby Kinney wades into a proposal for a new Philadelphia-based public bank, a financial institution being created to provide new loans with reduced cost of capital in marginalized neighborhoods. Along with co-host Charles Marohn, president and founder of Strong Towns, Abby examines the concept of public banks as presented in a podcast by the progressive non-profit media outlet, Next City.
Next City Executive Director Lucas Grindley and Senior Economics Correspondent Oscar Perry Abello ask whether the first public bank owned by a city can be a “systemic gamechanger for the racial wealth gap,” according to the group’s summary of the podcast. Derek Green, a Philadelphia city council member championing the city’s public bank, joins the Next City hosts to explain that loans to small businesses can be a source of jobs in economically stagnant “bank deserts.”
It’s an amazing idea that could have transformative benefits for people, or it’s a horrible idea that is ripe for corruption and mismanagement, says Abby. Chuck makes plain the concept of public sector banking is not a new idea. It is already fully in place in the form of the Federal Reserve and other large banks, which were propped up by public dollars because they were too big to fail in the financial meltdown of 2008.
“The federal government stepped in to make sure that [the large banks] don’t take inordinate losses, because we find these institutions to be fundamental to the running of the macro economy and I think that is all wrong,” Chuck says. “We either play in that system or we create something different at the local level. And that’s why this idea of having a local bank or a city-run bank or a community bank makes a ton of sense.”
Green and Abello in the Next City podcast point out that small loan portfolios like the ones proposed for the Philadelphia public bank can be riskier when looked at in traditional sense, but they often have lower than average rates of loan default. Both Strong Towns hosts agree the devil’s in the details and that a public bank needs to be well run, like any public utility, so it doesn’t make loans that are too risky just because they are publicly backed.
“It’s going to be very important that it’s well managed so that it can actually be a public good for a long amount of time,” Chuck adds.
Check out both podcasts if you are looking for creative financing solutions in your place and find that local Community Development Financial Insitutions (CDFIs) are too strapped to make loans. This could be a creative option, but it might make sense for public bank shareholders—aka local taxpayers—to be watchful.