Governor Signs Bill Authorizing Public Banks - What Could Possibly Go Wrong?
Thursday, October 3, 2019

Yesterday, Governor Gavin Newsom signed AB 857 into law.  The bill authorizes local agencies to establish so-called "public banks", subject to approval by the Department of Business Oversight and Federal Deposit Insurance Corporation. 

When I first wrote about this bill last March, I noted that the track record of public banks should be cause for concern.  According to a report issued by the State Treasurer last year,

"All public banks have ceased to exist either by regulatory order, financial failure, or the state or municipality closing the public bank, with the sole exceptions of the Bank of North Dakota and the recently approved American Samoa Bank."

Even the local tax collectors were not impressed the bill:

"Moving forward this legislation creates a false sense of hope for proponents who have been repeatedly advised that county pools cannot be used for these purposes, and that critical statutory protections of local dollars cannot be lightly dismissed." 

Assembly Floor Analysis (Sept. 6, 2019).  

The dismal survival rate of public banks belies the claims of the proponents of the bill:

"In contrast to profit-driven commercial banks, the public bank's board of directors will have a fiduciary duty to protect taxpayers' assets . . . By creating a public bank, taxpayer money will be held by an insured financial institution that measures its return on investment not only by profits, but also by its success in supporting communities." Id. 

 

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