By Edward Cowan
The District government is exploring the feasibility of establishing a “public bank” that would be owned by the city and tasked with lending for “unmet needs.”
This little-noticed initiative to put municipal government into the banking business has been sponsored by at-large D.C. Council member David Grosso and several colleagues.
The D.C. Department of Securities, Insurance and Banking has awarded a contract for just under $200,000 for a feasibility study of the “public bank” idea. The contact went to the only entity that submitted a proposal, Nymbus Corp., whose main office appears to be in McLean, Va. The report is due by Sept. 30.
Even if Nymbus takes a positive view of this controversial idea, it is unlikely that the council would pass enabling legislation promptly, or at all. The chair of the Finance and Revenue Committee, Ward 2’s Jack Evans, takes a dim view of putting the District into the banking business.
Nor is it clear that Mayor Muriel Bowser would sign such a bill (if re-elected).
Grosso and four other members also have introduced a resolution aimed at curtailing the District’s business relationship with Wells Fargo Bank, which handles much of the government’s everyday business. The resolution suggests a larger context for understanding the “public bank” proposal — displeasure with having the District conduct its financial business through what critics deride as “Wall Street banks.”
The District as of Dec. 31, 2017, had deposits of $2.3 billion with 25 banks and money market funds. Wells Fargo, which has found its way into a heap of trouble and incurred hundreds of millions of dollars of penalties for certain fraudulent banking practices, has become what might be called the “evil poster child” for critics of investor-owned financial institutions.
Grosso and others discussed a “public bank” at a March 15 meeting of the Cleveland Park Citizens Association. It was organized by association president Ruth Caplan, who favors the “public bank” idea. Others present said that the bank would lend to small businesses and individuals who are unable to get commercial bank loans, and that it would fulfill “unmet needs.”
In summarizing his sense of a “public bank,” Grosso said, “We’re going to invest our dollars locally … invest in small people, local business.”
Asked whether creating a public bank, whose deposits would come from D.C. tax revenues, would expand the resources available to the government to meet “unmet needs,” Grosso did not answer directly. Instead, he repeated a recommendation which he has made before, that $800 million of the city’s reserves should be released for spending. Grosso added that the chief financial officer, Jeffrey DeWitt, had told him that shrinking the District’s reserves would raise the interest rate it must pay when it sells bonds to finance modernization of schools and construction of new facilities.
There is only one public bank in the United States, the state-owned Bank of North Dakota, established in 1919. Advocates argue that it has been successful, as have public banks elsewhere, notably in Germany.
If such an institution were created here, it would put the District government into the banking business. A question for the feasibility study is whether individual D.C. residents would be able to have checking or savings account in a D.C. public bank.
Another question is whether a public bank would compete with existing commercial banks to get commercial deposits and make loans.
Still another question: How much seed capital would a public bank have, and would all of it would come from the District? Or would private investors be welcome?
Council members who joined Grosso in sponsoring the exploratory study were Charles Allen (Ward 6), Anita Bonds (at-large), Brianne Nadeau (Ward 1) and Elissa Silverman (at-large).
Were a public bank created, the transition from the District’s present arrangements with Wells Fargo could be complicated, according to the D.C. chief financial officer’s office. A spokesperson said that Wells Fargo’s “contract runs through 2020, with an option through 2025.” To replace Wells Fargo, a new competitive process and a transition “would take about two years.”
In this writer’s view, the idea of a public bank is misguided. The District government has difficulty managing its present institutions. The council can authorize loans and loan guarantees to people who cannot get bank loans. Creating a public bank would not make more resources available to address the endless list of “unmet needs.”
A retired New York Times economics writer, Edward Cowan has been a resident of the District for 46 years.