SEATTLE — The Seattle City Council is exploring the possibility of creating a public bank.
It would be a controversial and somewhat revolutionary step, but Councilmember Nick Licata says a public bank would operate in the interest of the city’s government and its residents.
Licata, chairman of the council’s finance committee, said a state-licensed public bank, in addition to holding money the city now deposits in conventional banks, might be able to lend money to small businesses, homeowners and others who lack good private banking options.
A public bank might also be an alternative to conventional banks for financing local infrastructure and housing projects.
“Public banks offer an opportunity to use public funds to benefit our local economy in ways that private banks don’t,” Licata said.
At a hearing this week, Licata’s committee heard from Karl Beitel of the Public Bank Project and the Roosevelt Institute, Gwendolyn Hallsmith of the Public Banking Institute and Thomas Keidel of the Federation of German Banks.
Public banks are not widespread in the United States, although North Dakota has had one since 1919. But several local governments, including San Francisco and some in Vermont, are exploring the possibility, the presenters said. Santa Fe, N.M., also has begun studying the feasibility a city bank, Hallsmith said.
Public banking has attracted increased attention since the 2008 financial crisis.
Germany has had public banks for about 200 years, Keidel said. They account for nearly one-third of that country’s market share in business loans, he said.
Beitel, Hallsmith and Keidel support public banks. Beitel said Seattle could use public-bank financing to pursue various goals, such as reducing income inequality.
“It would allow the city to play a much more active and dynamic role as a driver of urban and regional development,” he said.
The operation of a public bank wouldn’t require regular allocations of government money after its creation, Beitel said. The city could buy an existing bank to get started, or it could create a nonprofit foundation, he said.
The council will encounter stiff opposition from the private banking sector if it moves forward with the idea, Hallsmith said. Private banks will describe public banking as too risky, she said.
“The risks of keeping our large public deposits in these overleveraged, international banks is much greater than trusting in our own economic-development tools,” Hallsmith said.
“The profits of the (public) banks are invested in the communities,” Keidel added.
Glen Lee, the city’s finance director, said Seattle doesn’t need a public bank to borrow the money it needs, in part because the city has an excellent credit rating.
He said officials should study whether there is demand for the city to become a bigger lender. It already lends some money through economic-development programs.
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