On Nov. 4, Seattle City Council member Kshama Sawant proposed legislation to allow credit unions and community banks to manage the deposits of the city, deposits that are currently managed by Wells Fargo. Wells Fargo has been caught defrauding customers while giving bonuses to the executives who ordered the fraud to be committed. Seattle can end its contract with Wells Fargo in 2018. Then on Nov. 7, Sawant and five other councilmembers proposed selling bonds to finance affordable housing. Selling bonds means borrowing money from Wall Street banks and paying back principal and interest to these same banks over 30 years.
We propose that the city of Seattle charter its own bank, a public bank, that can not only manage the city’s deposits but can expand the money available for needed projects such as affordable housing and public infrastructure. The Seattle Public Bank would be a banker’s bank and could partner with local credit unions and community banks, guaranteeing their loans or buying their loans so they can make more loans. Because the interest and principal on a loan, for example to build affordable housing, comes back to the public bank, the cost to the citizens of Seattle for affordable housing would be cut, maybe in half over 30 years.
Worldwide, 40 percent of banking is done through public banks. There’s a nationwide effort to create public banks since the financial crash of 2008 – ’09. Locally the concept has been challenged on legal grounds. State law RCW 30A.08.020 does not prohibit a charter city from creating a bank. It simply says “persons” or “natural persons” may create a bank. In addition, the banking law could be amended by the state Legislature to allow a city to create a bank.
The city would be the only depositor in a municipal public bank, and the city would not withdraw its funds out of fear the bank would collapse as might be expected from individual depositors. If there were a legal challenge to the public bank once it was established, any borrowers would be under contract to pay back their loans. To compare the risk of public banking to the risk of the current Wall Street model is like comparing blocks of granite to soap bubbles.
In 2011, the Washington State Treasurer said a public bank would violate the state constitution (Article VII Section 5, Article VIII Section 7 and Article XII Section 9). These clauses taken literally seem to preclude public banking. But the intent of the clauses is “to prevent state funds from being used to benefit private interests where the public interest is not primarily served.” Former Justice Phil Talmadge has expressed the same idea, “the state would get a full return on its asset.” It would receive both the principal and interest on the loans.
In addition, a public bank will create many good jobs. A public bank partners with local credit unions and community banks making small business loans. We know small business creates most of the new jobs in our communities. The more of our city’s capital that can be invested in such a bank, the more the benefits will flow.
Currently the city of Seattle puts its “savings” into treasury bills and certificates of deposit, which make less than 1 percent return and feed financial bubbles and global market speculation. The public Bank of North Dakota has a high return on capital, more than 18.5 percent in 2014. Seattle should use this “savings” money as a source of capital to start a public bank.
The mission of the bank will be to strengthen the economy of Seattle, not to maximize the profits of private stockholders. Officers of the bank will not be incentivized to break the law like Wells Fargo. While we applaud Sawant’s proposal to end the city’s contract with Wells Fargo and build more affordable housing, we think creating a Seattle Public Bank is the best way to accomplish this.
Cindy A. Cole is a retired office manager of SEIU Local 925. John M. Repp is a retired Boeing worker. They are part of Seattle Public Banking Coalition.