Editor’s note: Wealth inequality is a central fact of life in the United States, and it’s getting worse. Every day our institutions are becoming more private, more considerate to the needs of big business, and more dismissive of the basic needs of the working class and our most vulnerable communities. For this reason the current movement to establish a true “public bank” in San Francisco is revolutionary. The movement, which is gaining steam, calls for a divestment from Wall Street and a re-investment in San Francisco communities. What follows is a commentary by freelance journalist Ian Firstenberg on the latest developments of the SF Public Bank. Firstenberg published an earlier piece with us about the SF Public Bank, which you can read in our Jan. 31, 2019 issue.
If we are to continue existing without broad swathes of people being killed and our world being swallowed by wildfire and rising oceans, we must change the way we distribute resources, especially profit and capital. On our current trajectory we are headed toward a post-industrialist world where massive groups of primarily working-class folks are basically cast aside from the economy, while the wealthy implicity dust their hands of any responsibility with a dismissive “You should’ve worked harder to not be so broke.”
To be curt, that sounds monstrous. If there is a chance we can steer this ship in another direction, we need to take it.
Public banking might just be that chance. Unlike a conventional municipal bank, which takes taxpayer and general pool funds and invests them in the stock market, a public bank would be beholden to voters, and could use funds to invest directly into things like affordable housing or green energy.
Back in January, following a groundswell of public support, San Francisco Treasurer José Cisneros assembled a Municipal Feasibility Task Force to explore the idea, and what a timeline for implementing it might look like.
The Municipal Task Force released its final report on March 22, outlining three models for a public bank—Model One, which focuses on lending and reinvesting in areas underserved by the traditional banking industry; Model Two, which creates a public bank that “can take over the City’s cash management and commercial banking (currently handled by Bank of America and U.S. Bank”); and Model Three, a combination of one and two that allows the city to divest from commercial banking partners and perform reinvestment lending, but not retail banking for customers.
Dean Preston, an affordable housing advocate and candidate for District 5 Supervisor, sees this as an investment opportunity for the people of San Francisco.
“I think there’s huge opportunity to invest in local businesses, to invest in affordable housing, look at whether we can acquire some of the student debt that is so burdensome for folks and basically be issuing lower interest loans for those,” Preston said.
The task force estimated that each of the proposed models would take at least a decade to break even, and that any one of them would require hundreds of millions (if not billions) of dollars in startup costs.
But the SF Public Bank Coalition, the driving force behind the campaign for a municipal bank, is challenging the report’s findings.
“The main concerns we have are the cost and the assumptions that they use that indicated the timeline for the bank to break even,” said Kurtis Wu, the coalition’s co-founder. “I don’t think the report does a good job distinguishing between a ‘cost’ and an ‘investment.’ They are very different things. Our coalition is trying to say, ‘Look this is an investment’ so it’s going to set a return.”
Wu said the report also ignores the current cost of doing business with Wall Street (which he believes is “huge”), so it isn’t possible to determine in real terms how much it would cost the city.
Sushil Jacobs, a senior attorney the Economic Justice at Lawyers’ Committee for Civil Rights, echoed Wu’s sentiments about the report’s shortcomings.
“We think that the cost projections are too high,” he said, adding that the task force neglected to model the potential of financial technology or “fintech” companies (tech companies that “automate delivery and use of financial services”) to dramatically reduce costs.
“We think [the estimated] $40 million annually is way too costly for the technology … and the City staff didn’t have the time or the expertise to analyze how we could license the technology,” said Jacobs. “That is the biggest cost in their projection, the cost of technology to bank the City’s money.”
Both Wu and Jacobs talked about using fintech infrastructure as a way to cut down initial costs.
“We’re in the financial tech capital of the world and 90 percent of these companies are doing well because they’re cutting costs, with technology you’re able to do things cheaper,” Wu said.
As an alternative to the task force’s three models, Jacobs and former San Francisco supervisor John Avalos cosigned a letter proposing a variation called Model 1.5.
“Model One is a loan fund, Model two and three is the city [being] primary banker. Model 1.5 stands in between those,” Jacobs explained. “The City would maintain its cash management services with this primary banker, which is this big bank. At the same time it’s incubating this new [municipal] bank.”
This means an official licensed bank (not just a loan fund) that could take deposits, either from a municipality or private depositors. According to Jacobs, those deposits would help it maintain a “lower cost base of capital” for “reinvesting into the community and building expertise and core competency in specific type of lending products: affordable housing, small business, green energy, student loans.”
“Model 1.5 is a way of phasing in a new bank, without just projecting enormous costs up front,” Jacobs said.
A small army of activists, lawyers, workers and politicians are working tirelessly to clear these initial hurdles, so the decision can ultimately be made by San Francisco’s citizens.
At this early stage it is important to clarify just what the ideological goals of a public bank would be. What does a “public bank” mean? Who does it represent? And who would be dictating the flow of capital? The establishment of such a bank isn’t an adjustment to the traditional banking system, it’s an upheaval of the banking system. From this investment would come a redistribution of profit, to the people.
As Wu sees it: “It’s not that profit and people are mutually exclusive … the question is, ‘Which people are getting the profit?’ When you frame it like that it becomes a conversation about the redistribution of wealth. The idea of a public bank is essentially saying we can have profit and people together, we’re just deciding which people they are.”