The Campaign for Public Banking in New York City

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Brian Lehrer: It's The Brian Lehrer Show on WNYC. Good morning again, everyone. Did you hear the news this week that Bank of America got into hot water over shady practices? According to an article as the New York Times reported it, the bank was fined $150 million by federal regulators for what they described as junk fees, as well as mishandling customer accounts. They did all kinds of things. The government found they had been opening credit card accounts without the knowledge of customers. What?

Double charging for some overdraft fees and not following through on perks like rewards points promised to credit card holders. All this to say privately owned banks including the biggest, most trusted ones are more concerned about profits than the well-being of their customers. Surprise, surprise. Who is surprised? Raise your hands. I don't see any hands. What's an alternative? Well, the New School Center for New York City Affairs released a report this week arguing for the economic and social benefits of creating a public bank. What is that?

A government bank? Joining us now to give us a closer look at the possibilities of public banking is one of the authors of the report, James Parrott, director of Economic and fiscal policies at the Center for New York City Affairs at the New School. We also have Tousif Ahsan, public banking campaign organizer at the New Economy Project and Advocacy Group. Tousif and James, welcome. James, welcome back. Tousif, welcome to WNYC.

James Parrott: Good to be here. Thank you.

Tousif Ahsan: Thanks for having us, Brian.

Brian Lehrer: James Parrott, could you start and just do public banking 101 to our listeners who've never heard of the concept?

James Parrott: Sure. Public banking, if the state legislation authorized this in New York, it would allow New York City, which has pretty sizable cash balances, the city has an annual budget of $110 billion. At any one point in time, it might have $8 billion to $10 billion in cash reserves that are held in banks. Currently, they're held in banks like Bank of America. It's one of the three largest holders of city deposits. The public banking legislation would allow New York City to place those deposits in a public bank that would be chartered for the purpose of growing local communities in New York City.

It's a matter of taking public resources from the city budget, using those on a temporary basis, lending those. The public bank would be effectively a wholesale bank lending to retail financial institutions like community development finance institutions, local credit unions that would then use those resources to lend for affordable housing, for small business development, for environmental remediation, and climate change projects. Those are the public policy objectives that are articulated in the Public Banking Act.

Brian Lehrer: Tousif, to be clear, this is not a proposal for a public bank that individual depositors would use for their savings or checking accounts or credit cards and things like that. This is for city funds and other large institutional public sector investors?

Tousif Ahsan: That's right, Brian. We're actually imagining that a public bank would really allow the city to divest from the current big banks, the Wall Street banks that are running counter to the city's policy objectives. They're driving the climate crisis by investing massive sums in fossil fuels. They're financing predatory landlords and luxury developers that gentrify neighborhoods and displace tenants. They're redlining poor New Yorkers and Black and brown communities.

That's why New Economy Project along with our partners in the Public Bank NYC Coalition, are working to create a public bank that would enable us to take our public money out of these banks that harm communities and instead put our public money to work for the public good. New Yorkers wouldn't necessarily be able to go up to a public bank, open an account, and engage in financial services.

We're actually imagining public bank would partner with community development financial institutions, and credit unions that are already doing a great job of providing those services in communities. They have relationships in neighborhoods and a public bank would partner with those institutions so that they could serve more New Yorkers equitably and fairly.

Brian Lehrer: James, looking at your report, it says in part that public banking in New York City would provide $5.8 billion in new lending by local community development, credit unions, and other responsible lenders. Listening to what you said and what Tousif just said, is it that this is a way to disinvest in the big commercial banks that have enabled redlining and other negative things in our society simply? Or is it also that somehow a public bank would enable the city to invest more in pro-social things like positive community development programs?

James Parrott: Well, so, Brian, it would actually do both of those things. Currently, the city deposits go into the large banks who then operate on a global scale. They take those resources and leverage lending wherever they believe they can make the greatest profits. It leads to the practices that Tousif has described that frankly don't have a beneficial, and likely have a negative economic impact for a lot of New Yorkers as well as people in other places. This would promote lending through community development financial institutions, and credit unions in ways that build up communities.

It's not only a means to advance social priorities, but it does a lot to advance economic growth and foster the well-being of low and moderate-income communities in New York City. We estimate that it would support 25,000 permanent jobs, that it would support their creation of 20,000 affordable housing units, that it would fund significant investments in climate change-related investments that are really needed to promote energy efficiency solar panel installation, and so on. It would advance social priorities, but with a great economic benefit because it's recycling public resources back into New York to reinvest in New York communities.

Brian Lehrer: Listeners, if anybody has a question or maybe a story about public banking, 212-433-WNYC, 212-433-9692 for James Parrott, director of economic and fiscal policies at the Center for New York City Affairs at the New School, and Tousif Ahsan, public banking campaign organizer at The New Economy Project New School, New York City Affairs Center. James Parrott's colleagues there have just issued a report on the prospect for public banking in New York City and what it could accomplish.

In fact, just this week, the city reported that a record-breaking 100,000 people are currently housed in the New York City shelter system underscoring the significant lack of affordable housing. James, I'll stay with you for a minute. According to your report, public banking could help with that issue?

James Parrott: It certainly could. I mean a lot of things need to happen to address this really substantial homelessness problem and the greater problem of the lack of affordable housing in New York City. The draft legislation to establish a public bank in New York City highlights the importance of affordable housing. About half of the lending that a public bank in New York City would do would support in one form or another the development of affordable housing, and that's housing that's permanently affordable.

It might be on community land trust, on lands with restrictions on the future sale of those affordable housing units so that they remain permanently affordable. It seems to be a no-brainer to public resources used to help leverage that kind of financing, which could help address this incredible affordable housing and homelessness problem that the city has.

Brian Lehrer: Here is George in Manhattan, a former banker, he says. George, you're on WNYC. Hello.

George: Good morning. I have had formal training as a banker having gone through programs at one of the bigger banks, and I spent over five years working inside a major bank. What I have seen of the way that they evaluate risk and more importantly, the way they go about considering financial obligations to make loans is that they realize at all times that they are working with other people's money in the sense that most of what goes behind a commercial loan that goes out is borrowed money either from deposits or from money purchased in the money markets. Very little of it is the actual equity.

They're not a venture capital fund. They are a bank and banks have a unique position in a capitalist culture, and certainly in ours. They have to evaluate it through the ability to get paid back, of course. Now, any bank should have to do that. The public record of publicly owned banks where the criterion is areas other than a return on the financial risk is there is that they often incur very, very big losses.

The question, therefore, is obviously not only getting the right people to be the ultimate credit deciders to approve or disapprove but also to have a very clear picture that they need to keep themselves financially solid to be able to survive and make other commercial loans after the first loans are paid back. I'll leave it at that. I think that's saying enough at this stage.

Brian Lehrer: George, thank you very much. Tousif, could you address that? How would there be risk-benefit analysis taken into account in a public bank that would prevent it from going insolvent and needing taxpayer bailouts?

Tousif Ahsan: Yes, sure. First, I want to push back a little bit on the record of public banking. There are actually public banks all over the world. We have them in Canada, Central and South America, Europe, Asia. There's over 900 if you're talking about public banks globally. There's even a public bank here in the United States, of all places, in North Dakota. It's actually outperformed commercial banks during the financial crisis. It delivered more PPP loans to small businesses than those big banks during the pandemic. Other places have caught on.

California is moving forward with public banking in places like the Bay Area and Los Angeles. We believe that it's time for New York to create one as well. In terms of the risk assessment of public banks, the thing is that public banks are operating under a different philosophy from commercial banks. They're not chasing profit first. They're putting the public good over anything else. To that end, they're actually not engaging in these risky speculative practices that we know most commercial banks are-- The ones that are failing, the ones that are experiencing bank runs, they're going to be engaging in activities that are much more measured and that actually see more reliable returns as a result.

Brian Lehrer: Interesting. Tousif, let me stay with you. Can you take us inside the politics of this issue? I understand that there are currently bills on the desks of both New York City and New York State officials. What are they and who needs to approve it?

Tousif Ahsan: Sure. Let's talk about the logistics. In order to create a bank, the first thing that the city needs is a charter from the state's financial regulator. A charter is just a license to create a bank. As your listeners can probably imagine, there are no public banks in New York. The legal framework for chartering a bank is designed to accommodate commercial banks. Creating a public bank in the current legal framework is pretty much like putting a square peg in a round hole. That's why we need a framework specifically designed for public banks.

We've backed a bill in the state legislature called the New York Public Banking Act, which would do just that. It has the majority of the state Senate and a near majority of the assembly on board, but like I said, the big banks wield a lot of influence in New York, and they've pulled out all the stops to prevent the bill's passage. Our coalition is turning its attention to the leadership of the legislature, and this report gives us really compelling data to present to them as we fight to get the bill passed in the next legislative session, which resumes in January.

Brian Lehrer: Let's take another call here. Sarah in Washington, D.C. Sarah, you're on WNYC. Hello.

Sarah: Hello. Good morning. I completed Americo service here at a CDFI, Community Development Financial Institution, that your speaker was talking about before. I'm glad you all touched on the housing issue, but I was hoping he could speak more to the small business implications that I think public banking have.

Brian Lehrer: Which of you wants that? James, maybe?

James Parrot: Sure, I could talk about that. Lending a small business is one of the public policy priorities that the Public Banking Act legislation calls for. In the modeling we did, we modeled what the loan portfolio of a public bank might be if they received roughly $6.5 billion in city deposits. What we modeled was that about half of the lending supported through the community development financial institutions would be to support affordable housing, which we talked about. Huge priority in New York.

The balance would be roughly split with maybe 30% going to small businesses and worker cooperatives, and then 20% for climate infrastructure lending, building electrification, energy efficiency, solar installation projects, and so on. About 30% of the lending would go to small businesses. Again, lending done by community development financial institutions. It's become very clear in recent years that large banks don't do a very good job of lending to small businesses.

We saw that play out in New York when many locally owned small businesses in New York City were left out of the paycheck protection program loans because they didn't have an ongoing banking relationship. Efforts like this to help leverage additional small business lending would help correct for that lack of access and affordable lending that small businesses now suffer from.

Brian Lehrer: Sarah, thank you. Call us again. Derek in Manhattan, you're on WNYC. Hi, Derek.

Derek: Good morning. The US Health representative Ocasio Cortez, I think she's out of Queens, had proposed [crosstalk] and got a significant amount-- I'm sorry, Brian.

Brian Lehrer: I was just saying Queens and the Bronx. Yes, go ahead.

Derek: Oh. Had significant amount of co-signers for a proposal to use the post office as a bank. Nationwide, local post offices performing banking services, deliver more services to the poor, less cost to them, and more concentration of financial services in poor and communities of color. How much of this proposal that you guys are talking about is similar to that?

Brian Lehrer: Yes, that's a great question. I'm glad you brought that up, because, Tousif, that's the first thing that I thought of when I saw that the New School had put out a report on public banking and that you were involved in advocacy for public banking law for New York State. Because we've talked on the show before about how it's hard for the people who Derek was just talking about there, the caller, it's hard for poor people in lower-income communities in many cases to establish bank accounts or get credit in what we think of as the mainstream ways.

They get forced into these check-cashing services with big fees and things like that. There are proposals to have post office banking to help provide an alternative in that respect. This is not that, right?

Tousif Ahsan: That's correct. One of the key differences is that the public bank would be not only accountable to the people in terms of its governance structure that is to say New Yorkers will have an opportunity and can really take the initiative in helping to decide what are going to be the lending priorities of a public bank. Something else that I want to point out is that the credit unions and community development financial institutions that are already doing the amazing work of serving New Yorkers with equitable financial services, they're actually in our coalition, the Public Bank NYC Coalition, and they're extremely excited about public banking because they understand how powerful the prospect of a public bank in New York City, for example, which would be able to partner with the credit unions and be able to help them expand services. They really see that as the way to move forward, and that's why they're all in on public banking.

Brian Lehrer: Tousif, is this idea because it would empower credit unions and those kinds of community banking institutions, but which are still private, a credit union is still private for the most part. Is this competitive with the idea of post office banking or is this complementary to it?

Tousif Ahsan: Our coalition hasn't engaged too much with this idea. For now, the credit unions, the CEFIs, they're really prioritizing public banking as their policy goal because they see that as the best way to expand their mission and expand their service to New Yorkers.

Brian Lehrer: One more call. Darryl in the Bronx. You're on WNYC. Hi, Darryl.

Darryl: Great. Thank you so much for taking my call, Brian, and would you all speak to, A, what the current fee structure is to the major banks that the city pays and what that money could be used for if New York City had a public bank? B, what strategy do you all have? Because even though I'm familiar with public banking, mostly through Ellen Brown's podcast, what policy do we need to do in order to get especially Carl Hastie and Stuart Cousins to wake up and smell the coffee

Brian Lehrer: [chuckles] Yes. The leaders of the New York State legislature, and James Parrott, let's conclude on this, and interesting that he brings up the fees because we started at the top talking about this Bank of America scandal, you might call it, the finding of the federal government, the way they've been bilking some customers on fees among other problems. What about the huge investments that the City of New York through the pension funds and other money has with the private banks? What kinds of fees do they get charged for that?

James Parrot: Yes. They get charged pretty lucrative fees for that as well. It's clear from everything that we talked about this morning that we need to have a different orientation, a different financial model that better serves communities, in particular, New York communities of low-income communities and communities of color that have been so exploited and overcharged and underserved in terms of lending in New York City. Now, public bank is a way to do that. I think over the long term, what we modeled was just the economic impact, which was pretty significant in the first five years.

Over a longer period of time, it's not only going to have a growing economic impact, but I think it's also going help put pressure on the private commercial banks to treat their customers better to themselves, engage in more lending to small businesses, to energy efficiency projects, to affordable housing, and so on. We clearly need to move in this direction, and public banking is an important way to do that and our elected officials in Albany should realize that and begin to push back a little firmer against the banking officials who say, ''This is not going to work, and it's going to be an irresponsible stewardship of public resources.''

That's clearly not the case. Last year there was a Wells Fargo situation, which also used to hold city deposits where they were found pretty complicit in discriminating in lending against African American communities and the city took them off the list of acceptable deposit institutions for a while.

Brian Lehrer: We leave it there with James Parrott, director of economic and fiscal policies at the Center for New York City Affairs at the New School, which just released a report on public banking, and Tousif Ahsan, public banking campaign organizer at the New Economy Project. Listeners, there's an issue a lot of you didn't know about before, and now you little know a little more about it. Thank you both for joining us.

James Parrot: Thank you, Brian.

Tousif Ahsan: Thank you so much.

 

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