Should San Francisco Create a Public Bank?

San Francisco voters will decide in November whether to set up a public bank, a city-owned financial institution that could manage city funds and make loans. The move would make San Francisco the first city in the country to operate a public bank, though it’s a concept cities and states across the country are exploring as a way to give local governments more control over their money and fund projects such as affordable housing, green energy infrastructure and small businesses that commercial banks don’t typically fund. Critics say cities already have tools available to them that are less risky and complicated to use. We’ll dive into what it is and how it might work in San Francisco.

Guests:

• Misha Steier, spokesperson, San Francisco Public Bank Coalition
• Alyce McFadden, city hall reporter, San Francisco Chronicle
• Prasad Krishnamurthy, professor of law, UC Berkeley School of Law

This is a computer-generated transcript. While our team has reviewed it, there may be errors.

Alexis Madrigal: Welcome to Forum. I’m Alexis Madrigal.

Our banking system is remarkably complicated. There’s been enormous bank consolidation over the past few decades, too, leading to massive market concentration. Numbers are a little wobbly, but the four biggest banks control trillions and trillions of dollars, with the top 10 holding more than 50% market share.

In these massive institutions, there’s all kinds of complex infrastructure to leverage money, manage risk and skim profits. It wasn’t always like this. The old S&L, savings and loan, once had a simpler operating model, taking money from a community and lending it back out for residential real estate.

It wasn’t perfect. Some S&Ls were undercapitalized. Others were explicitly racist. Some were both. But it did keep a community’s money circulating there rather than absconding to the giant pool of money in the sky to be invested in pork belly futures or weapons manufacturers.

That’s an old idea, though, the S&L. Maybe some of banking’s problems could be solved by a different kind of public institution, one that keeps the city’s dollars being lent out to the residents of that city for housing and infrastructure.

This idea is on the ballot in San Francisco this fall, and as we’ll discuss, sort of in Berkeley, too. So we thought we’d get you read in on this idea this morning.

Joining us first, we’ve got Alyce McFadden, city hall reporter at the San Francisco Chronicle. Welcome.

Alyce McFadden: Thank you. Great to be here.

Alexis Madrigal: And we’ve got Misha Steier, spokesperson for the San Francisco Public Bank Coalition. Welcome, Misha.

Misha Steier: Thank you. It’s a pleasure to be here.

Alexis Madrigal: So, Alyce, let’s just talk about the measure on the ballot, what people in San Francisco will actually see. There’s this proposal in November. What are voters actually deciding on?

Alyce McFadden: Yeah, great question. So Proposition B, if it passes, would create a legal framework to create a municipal finance corporation in San Francisco, which is a precursor institution to a public bank. It sets out rules and structure for what this would look like and enshrines them in the city charter. It gives the city the ability to stand up the bank, raise money for it, staff it, begin issuing loans at some point down the road.

Alexis Madrigal: Because the issue is, it’s not like there’s a specific model here, right? There’s no other city they can just go, “Oh, let’s look at how Jacksonville did this,” right? I mean, this would be a kind of first-of-its-kind thing.

Yeah, yeah. Misha, so given that, what is the kind of public bank that’s sort of being envisioned here in San Francisco?

Misha Steier: So public banks are a very common feature of the global economy. A quarter of the world’s banking assets are held in public banks. So there are a lot of models to look at. They are relatively rare in the United States, but the model — the way San Francisco kind of came together around this vision was the reinvestment working group was created by the supervisors in 2021 to scope out this plan, a business plan, governance plan, viability study for our public bank for our city.

And the way I like to think about it, you know, public banks, all the different models, there’s really just kind of a spectrum of, you know, sustainability and impact, right? And it’s just, where do you want to land on that spectrum?

Alexis Madrigal: What do you mean?

Misha Steier: Well, the beauty of public banks is they both make some money, right? Like, they make returns, and then they issue affordable-term loans for community needs.

So a bank could be, you know, more subsidized and have greater impact, or a bank would be more on the sustainable end, just making sure that it doesn’t require continued subsidy, doesn’t need — you know, we even see public banks that don’t return a profit because they’re the people in that place choose to subsidize it.

But the vision that the reinvestment working group came up with really is one more on the sustainability end of the spectrum, really grounded in a plan to protect public funds, understanding that this is the first municipal public bank in America, and we have all the more responsibility to make sure that it succeeds.

Alexis Madrigal: So let me ask kind of the ultimate dumb question: Where does the money come from to lend out? All right, what happens there?

Misha Steier: Yeah, so banks lend money in part based on deposits they receive. So not every dollar a bank lends is a dollar that a bank has, you know, one-to-one squirreled away somewhere. Certainly, there is still capital reserves, there’s collateralization. It’s not all based on deposit, but it sounds strange to say out loud. Banks lend dollars — your dollars, you know, in part.

And so that’s a benefit that is majority enjoyed by private actors in the private market in America.

Alexis Madrigal: But, I mean, like, who’s going to put money in this bank? Just for really basic—

Misha Steier: Oh, it would be the depositor.

Alexis Madrigal: Yeah, yeah, yeah.

Misha Steier: Yeah. This is not going to be a bank that you or I can open a checking account at. The vision for this, it’s really going to be large institutional depositors, you know, way down the line, after the bank is up and running, has a credit rating. This is not like the first thing it’s going to do.

But the hope for the deposit base, which would, of course, be the city of San Francisco, there’s tons of interest from philanthropic institutions who’d love to see this, union trusts. There’s, like, anyone who would want to see the San Francisco public bank succeed, has some money and needs a place to deposit it.

And they’d rather not deposit it in, you know, a large Wall Street bank that’s also financing fossil fuels, weapons. If they’d like to see it deposited in a bank that aligns with their values, they’d deposit it into the San Francisco public bank.

Alexis Madrigal: Alyce, let’s talk a little bit about the politics around it on the Board of Supervisors. Who’s behind the proposal? What are they saying about it? Who’s opposed, if anyone?

Alyce McFadden: Yeah, so the charter amendment was introduced by Supervisor Shamann Walton. This has also been something that Supervisor Jackie Fielder has worked on for a long, long time and something that she has been a really strong proponent of.

It passed the board by a vote of nine to two to get on the ballot. Supervisors Alan Wong and Stephen Sherrill were the no votes there. So it does enjoy this pretty broad base of support on the board.

And I do think that it’s important to say that this is sort of a progressive policy that is the brainchild of, you know, progressive advocates in San Francisco.

Alexis Madrigal: Yeah, there’s, like, an Elizabeth Warren webinar on it, you know, that kind of thing.

How long do we know would it take for a bank to get up and running if the voters would approve it in November? Do we have a sense of that?

Misha Steier: Yeah, it would take — the vision is, it would be three years after we put some money into this project to get a bank charter. That’s the goal, that’s the ability to take deposits and lend on it.

This measure does not dedicate funding to start that bank, so it’ll take as long as it takes for San Francisco to find the money to start the bank, to start the three-year clock to get that bank going.

Alexis Madrigal: Got it, got it. But, I mean, don’t we have the money if it’s going to come from basically, like, tax revenue? Can’t we just put it in there once it’s there?

Misha Steier: That would be the most surefire way to start the bank, would be for us to put money in there. But the beauty of Prop B is that there’s a lot of opportunities to capitalize green-financed institutions outside of San Francisco.

So recently, Biden’s climate bill, the GGRF fund, just had a major victory in the appeals court, and there’s billions of dollars there available for capitalizing things like green banks, state interest, philanthropic interest again. It doesn’t need to be capitalized by money from San Francisco.

That being said, if we want to make sure it happens, then that’s the way we do it.

Alexis Madrigal: So I know you’ve been working on this for five years, six years, something like that. How has the idea of a public bank in San Francisco changed over time? Is this where we set out? This was the target to have this kind of bank? Or have things evolved along the way?

Misha Steier: That’s a really great question. I think, you know, over the — certainly 10 years ago, you know, when we got started, we didn’t know quite as much ourselves as activists about this.

So I think over the years, you know, working with, you know, people like the city treasurer, bankers and stuff, we’ve really come to appreciate a bunch of benefits of public banking.

Like, beyond just the top-line ideological ones that were so motivating to us, right? Like, we got started, the coalition was formed around opposition to the Dakota Access Pipeline and trying to combat the finances of fossil fuel and finding that there was no alternative for where our city deposits could go.

And so we just wanted to create an institution initially that could facilitate that.

And the more we go, the more we learn about, like, wow, there’s all these wonderful programs that, if there could just be a little bit more flexible lending in between, could have way more impact.

There’s programs at the Bay Area Air Quality District for people to electrify their homes, but they have really flexible three-year terms. And just, if we had something that could make that five-year, seven-year term, don’t lock all these wonderful things.

So I would say the way it’s changed, it’s just gotten more sophisticated.

Alexis Madrigal: Mm-hmm.

Misha Steier: As we’ve appreciated that it can do all these wonderful things for our—

Alexis Madrigal: I mean, one of the models that people look at, which I thought was pretty interesting, was the sort of original kind of Progressive Era bank in North Dakota founded by farmers. You know, you can go look up reports that are sort of like North Dakota Bank, application for public banks in California. You know, there’s all this kind of stuff.

Do you think that North Dakota bank is pretty applicable to what we’re trying to do here in San Francisco, or is it more like a spiritual inspiration?

Misha Steier: I would say it is, you know, not directly one-to-one applicable. Like, we’re not proposing, you know, that San Francisco back our public bank with the full faith and credit of San Francisco, like North Dakota has set up for them.

That being said, they’re a wonderful resource for our movement. And, you know, it is really funny because it’s these guys from North Dakota who are by no means, like, Elizabeth Warren people, but they’ve got this bank and it works and they just want to tell people about it.

So they really — I mean, I would say there’s a lot of inspiration on the practical level because people have been doing this for a hundred years. It’s incredibly successful. And every time the question of, like, you know, the cost of this bank comes up, I just keep remembering that the Bank of North Dakota was capitalized with $2 million a hundred years ago and has turned $600 million in profit to the people of Dakota.

So, like, what we’re doing is really — yeah, the real inspiration from North Dakota is that once you start something like this, it’s going to last for lifetimes because everybody loves it because it works.

Alexis Madrigal: We’re talking about a proposal to create a public bank in San Francisco. It’s on the November ballot for San Francisco voters, of course, putting it on this kind of longer pathway to an actual usable financial institution for the city.

We’re joined by Misha Steier, spokesperson for the San Francisco Public Bank Coalition. We’ve also got Alyce McFadden, city hall reporter with the San Francisco Chronicle. We can hear from an opponent of the bank in a little bit.

And, of course, we also want to hear from you. Do you support the idea of a public bank? Why or why not? What are your questions about how a public bank in San Francisco or in your community could work?

You can give us a call. The number is 866-733-6786. That’s 866-733-6786. You can email [email protected] with those questions or find us on social media, Bluesky, Instagram or Discord.

I’m Alexis Madrigal.