WHAT'S A PUBLIC BANK?
The Municipal Bank of Los Angeles (MBLA) will be a non-profit financial institution owned by the city, established to serve and meet the needs of the local community. Unlike private banks, which operate for the benefit of shareholders and are profit-motivated, public banks are owned and controlled by local governments or municipalities. This means that they are accountable to the public and operate with the goal of serving the public interest rather than solely focusing on increasing profits for private shareholders.
The MBLA will support economic growth, community reinvestment, and financial stability in Los Angeles by offering accessible lending programs and banking services. As an alternative to for-profit commercial banking, the MBLA will enable the City to manage its financial resources, reduce costs and risks, and align investments with community values and goals. The California Public Banking Act (AB 857) enables local governments to apply for licenses to operate banks that benefit their communities.
One of the key benefits of public banks is their ability to keep public money invested locally. Because they are not driven by profit, public banks can prioritize returning banking profit and interest to local communities. This helps to support the growth and prosperity of our communities by keeping money circulating within them, rather than allowing it to be siphoned off to external interests.
Creating sustainable, livable communities that can meet the needs of their residents will require significant planning and investment. This includes efforts to provide affordable housing, reduce reliance on fossil fuels and extractive industries, and support local enterprises. However, traditional sources of funding, such as private banks and investors, may not always prioritize these goals. This is where public banks can play a crucial role.
As financial institutions accountable to the public, public banks can prioritize investments that align with the goals of building sustainable, livable communities. Because public banks return banking profit to local communities, they can help to ensure that investment is directed where it is needed most. By investing in projects that support energy-efficient affordable housing, climate justice, and small businesses, public banks can be a pivotal part of creating communities that meet the needs of their residents.
POSITIVE IMPACT AND BENEFITS OF PUBLIC BANKS
• Cost Savings — A public bank enables the City of Los Angeles to borrow from its own municipal bank, significantly lowering borrowing costs and generating more revenue for community-focused priorities. By eliminating the necessity for costly bonds, the City will have increased funds to invest in essential public services such as education, healthcare, and infrastructure improvements.
• Access to Credit for Small Businesses — California public banks will partner with community banks, credit unions, and Community Development Financial Institutions (CDFIs), enhancing their cash flow so they can provide low-cost loans and affordable credit to underserved communities or businesses that might not meet the qualifications for loans from conventional banks.
• Streamline Funding for Affordable Housing — A public bank simplifies the intricate affordable housing financing system by consolidating funding sources. This centralization supplies affordable housing developers with the essential capital to swiftly and efficiently acquire, preserve existing housing, and build new affordable housing alternatives.
• Support Racial and Economic Justice — The Los Angeles public bank will boost credit access for local community banks and credit unions, offering affordable banking services and loans to unbanked and underbanked LA residents. The public bank can incorporate racial equity mandates, prioritizing investments in historically marginalized communities. This approach helps tackle “banking deserts” in predominantly low-income minority neighborhoods and counters predatory lending practices.
• Strengthens Local Economy — The LA public bank will keep money in the local economy instead of directing it to distant shareholders. It will prioritize lending to LA businesses and vital infrastructure projects, promoting sustainable growth and development in the community. Loan repayments benefit the community and generate interest revenue for the bank.
• Transparency and Accountability — Public banks, owned by local governments and under democratic oversight, provide transparency and community accountability. Their democratic control allows them to prioritize local businesses, individuals, and government agencies’ needs over profit motives, ensuring community interests are at the forefront of their operations.
Public banks are a powerful tool for supporting economic justice and promoting equitable development within our communities. By providing underserved populations, including small businesses owned by women, immigrants, worker co-ops, and communities of color, with access to transformative capital, public banks can help to level the playing field and create more opportunities for these groups to succeed.
In addition to supporting the economic well-being of our communities, public banks also offer many financial advantages. Rather than depleting general reserves through spending, public banks can improve our cities’ financial position through lending, generating profits that can be directed back into our communities. This helps to distribute wealth more evenly, supporting economic development and reducing inequality.
One of the key goals of Public Bank Los Angeles and the California Public Banking Alliance (CPBA) is to address the widening racial wealth gap in the state, which is fueled in part by the exclusion of nearly 10 million low-wage Californians, many of whom are Black and Brown, from basic banking services. To address the unbanked and underbanked issue, the CPBA co-sponsored Assembly Bill 1177, which was approved by the state legislature in 2021. This bill will explore the creation of a program to guarantee all Californians access to essential banking services without fees or penalties, helping to promote financial stability and enhance economic progress. Through our efforts, Public Bank Los Angeles is committed to creating a fairer financial system for all Californians.