Public Banking Act

Rep. Tlaib and Ocasio-Cortez recently introduced H.R.8721, the Public Banking Act, which would establish a (1) federal-level regulatory framework for public banks, (2) public bank grant programs, and (3) a supporting financial infrastructure for public banks. 

While the bill doesn’t directly create new public banks, it solves a number of problems faced by public banking advocates:

  • Legitimizing the idea of public banking to moderates/conservatives/skeptics as an institutional option
  • Providing substantial technical, legal, and financial assistance to start up public banks, currently undertaken largely by volunteer organizers
  • Carving out privileged access to federal finance tools for public banks
  • Leapfrogs the siloed efforts of changing individual state banking regulations with mixed success

On (1), the bill would provide formal federal recognition to banks chartered at either the federal or state level, resolving a number of problems currently facing public banking efforts. These include:

  • Clarifying that public banks must be wholly owned and controlled by the public via their state, local, or tribal government or a designated nonprofit instrumentality.
  • Lifting the $250,000 cap on public deposit insurance. Public deposits in private banks are currently FDIC insured but only protected up to $250,000, making the insurance functionally worthless relative to the size of public deposits. 
  • Creating a framework for public banks to act as fiscal agents for investing the funds of governments and public entities.
  • Building in a mandate for the federal framework to be “universal and comprehensively include historically excluded and marginalized groups.”
  • Developing regulations to ensure the banks’ practices are consistent with federal decarbonisation targets, and outright prohibiting any activity related to fossil fuels. 
  • Setting up a framework for public banks to act as intermediaries for a federally administered “central bank digital currency” (CDBC), digital cash, and/or postal banking system (as described in the sections below). 

On (2), the bill creates three grant programs (which would be accessible to public banks regardless of the financial health of their sponsoring governmental entity): 

  1. The Public Banks Grant Program, which would provide funds for start-up, capitalization, and ongoing operational costs.
  2. The Public Bank Incubator Program, which would provide technical and technological assistance to those seeking a public bank charter.
  3. The Community Development Grant Program, which would fund the facilitation of coordination of public banks with community development financial institutions (CDFIs), minority deposit institutions, and credit unions in order to support the public banks’ mandate to promote universal financial services.

On (3), the bill would establish four Federal Reserve facilities for public banks, which altogether would provide public banks a comprehensive set of lines of credit on both secured and unsecured bases (i.e., borrowing against the banks’ retail credit, public securities, and any other financial assets).