
What If Banks Were Publicly Owned? In LA, This May Soon Be a Reality - evo_9
https://www.huffingtonpost.com/entry/public-bank-los-angeles_us_5b6bef33e4b0ae32af954495
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refurb
_Because a public bank is not a for-profit business, it can offer lower
interest rates than private options, saving billions of dollars over time. And
because the city owns the bank, any interest income would flow back into its
coffers. That reduces financing costs and facilitates more lending. Plus, the
money stays at home, circulating in the local economy rather than traveling
into an investor’s pockets or a risky trading scheme._

I don't think this is well thought out.

They are ignoring opportunity cost. If the city lets a bank hold $1B, they get
X amount in interest. If they pull that money out and lend it at a lower rate,
they will get a smaller return. That's not "saving billions" at all.

I get the sense the people who thought this up have little to no understand of
how finance works.

~~~
shove
Your argument sounds a lot like, "if they buy apples at $1 and sell them at
$0.95, they'll loose money"

It is in fact possible to loan out money at a lower interest rate than a
private bank while simultaneously collecting a higher rate than the bank pays
on deposits because the bank doesn't lend at the same rate it pays out. The
larger that spread, the more sense this idea makes. Seems like an elementary
mistake for someone leveling the accusation that the scheme isn't well thought
out. Surely there's more to your critique than this.

~~~
refurb
Explain this particular sentence... _Because a public bank is not a for-profit
business, it can offer lower interest rates than private options, saving
billions of dollars over time._.

Where are the "savings"? This money was originally _earning_ interest, not
costing money.

And of course they need to incorporate the default rate on their loans, which
would lower the overall return.

Overall, a very hand wavy plan.

~~~
refurb
And looking at the Bank of North Dakota, it indeed looks like they don't save
any money at all.

 _The vast majority of funding for the Bank of North Dakota comes from
deposits resulting from tax and fee collections. The bank essentially offers
below market rate loans by paying lower deposit rates back to the State,
ultimately costing the taxpayer._ [1]

[1][https://www.denverpost.com/2015/03/04/colorado-would-be-
wise...](https://www.denverpost.com/2015/03/04/colorado-would-be-wise-to-
reject-state-owned-banking/)

~~~
tk75x
I look at it this way: Scenario A: city deposits their funds in a private bank
where the funds earn a 1% interest rate. The private bank lends funds at 5%
interest. The bank keeps the 4% difference. Scenario B: city keeps their funds
in a public bank. The public bank pays out interest at 2% and lends at 4%. Now
the city is keeping the 2% difference with the added benefit of total control
over its funds.

~~~
mmt
> The private bank lends funds at 5% interest

Hang on.. is that the _rate_ the bank is lending at, or their yield, including
any losses from things like defaults and costs?

> the added benefit of total control over its funds.

Actually, not quite, because one no longer has _control_ of any funds that
were lent out.

If a disproportionate number of borrowers all miss a payment during a
particular month (even if the don't outright default and catch up next month),
the city/bank will have to borrow those funds from the Fed. This can also
happen if the city isn't the only depositor and there's a "run" on the bank.
That borrowing, short-term though it may be, adds cost, and the rate is
(occasionally) variable, unlike, say, many mortgages.

The point is, understanding interest rate spread is simple enough, but the
reality (especially with fractional-reserve banking, which is another can of
worms) is far more complicated. What seems obvious when explained with the
simple model isn't actually so.

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hackeraccount
Whenever I see articles like this the questions that occurs to me is: Why
limit this to banks? Why not have a publicly owned restaurant? Convenience
store?

~~~
craftyguy
Banks are literally the cornerstone of the economy. I'm not aware of any
restaurants of convenience stores that are even close to being as critical or
'too big to fail.'

~~~
lotsofpulp
Banks aren't too big to fail just because they are banks. If they weren't
allowed to get so big or merge together, they they wouldn't be too big to
fail.

~~~
craftyguy
I never said that, but I'll clarify: They are too big to fail because we have
allowed them to become too big to fail.

~~~
pitaj
They're too big to fail because politicians decided they were. Of course, they
aren't _actually_ too big to fail. In the financial crisis, if they hadn't
bailed out the banks, they'd either be acquired by competitors, or go out of
business and people would have actually learned their lessons to not take on
excessively risky assets. Instead, the government bailed out the banks,
essentially telling them that they should take on whatever risk they want,
because they'll just be bailed out whenever they fail.

------
toast0
So it seems like the core issue they're trying to solve is Los Angeles's
portfolio is too large to manage at a community bank[1], because it's too
risky. And the solution is to create a single customer bank?

It would seem to me that the way to manage this is to either use the large
size of the portfolio to demand concessions from commercial banks, or split up
the banking needs over several banks -- although it's probably difficult to
split over enough to be able to use the services of even the largest community
banks. The article reports $101 Million on deposit with Wells Fargo at some
point, that's just a huge amount; more than 1% of total assets for most credit
unions (all except the top 7 [2])

[1] I'm going to use bank, when it could also be a credit union, since for
most purposes they're interchangeable.

[2] [https://www.mx.com/moneysummit/biggest-us-credit-unions-
by-a...](https://www.mx.com/moneysummit/biggest-us-credit-unions-by-asset-
size)

------
lowry
Dexia and Belfius are state owned in Belgium since the state bailed them out
in 2008. Same for Ethias, an insurance company.

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safar
All they have to do is study how the Indians did it - under Mrs. Indira
Gandhi's leadership, at one go, all private banks were nationalised in India
and the ownership transfered to the government who ran it; 30+ years down the
lane, India now also allows private and foreign owned banks with strict
regulations.

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Findeton
What if currency were privately printed?

~~~
cmurf
If by currency you mean paper and not coins, this is already the case. The Fed
is a private institution with a government mandate to print paper money. The
plates are owned by the U.S. Treasury, but the printing is performed
exclusively by the Fed authorized by the Federal Reserve Act.

Because the U.S. Constitution authorizes coining but not paper currency, and
the Federal Reserve Act authorizes the Fed to print paper, it's something of
an open question to what degree the printing of paper currency is an
exclusively federal power. But in practice anyone trying to print a competing
paper currency domestically gets stomped on. As far as I'm aware though, it's
untested if a state could print its own paper money - but to what end? I think
it's a hypothetical really only of interest to monetary economists and perhaps
some fringe politicals, which is where it would need to be explored
substantially before it could ever emerge practically.

There are historic cases of private banks issuing paper money in the U.S., but
it usually degraded into distrusting the currency, one exception being the
Suffolk Bank system, but even that eventually came to pass. You could argue
that your VISA, MasterCard, or Amex card is a private "currency" with a fixed
exchange rate 1:1 with the card's issuance currency. By offering you a line of
credit on the card, they've "printed" their own private currency, with an
externally facing dollar (or whatever the currency happens to be in the card's
issuing location). But as it's not in physical paper form, it's sorta shrugged
off as a convenient derivative rather than a competitor.

And so back to the public bank question, most countries do have them. Their
central bank is publicly owned. Bank of Germany, the Bank of Canada, the Bank
of Mexico, etc.

~~~
opo
>...There are historic cases of private banks issuing paper money in the U.S.,
but it usually degraded into distrusting the currency, ...

I don't think that was the general case at least with the bank notes issued by
the national banks after the civil war:

>...From 1863 to 1935, National Bank Notes were issued by banks throughout the
country and in US territories. Banks with a federal charter would deposit
bonds in the US Treasury. The banks then could issue banknotes worth up to 90
percent of the value of the bonds. The federal government would back the value
of the notes—the issuance of which created a demand for the government bonds
needed to back them.

>The program was a form of monetization of the Federal debt. Bonds eligible as
collateral for posting to the Treasury were said to have the "circulation
privilege" and the interest they bore provided seigniorage to the National
Banks.

[https://en.wikipedia.org/wiki/National_Bank_Note](https://en.wikipedia.org/wiki/National_Bank_Note)

The program was run for over 70 years, it was only with the Great Depression
and the desire to have the Fed have greater control over the money supply that
the program ended.

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dublin
That's called a Credit Union. Not a new idea....

~~~
tathougies
A credit union is a non-profit. A non-profit can be owned by a government or
an individual, similar to how a for-profit can be owned by a government or
individual. In other words, the two descriptions are completely orthogonal.

Most credit unions (really, the vast majority) are privately owned, typically
by the account holders themselves.

