Penn alumni are spearheading a movement to establish America’s only municipal public bank in Philadelphia, which its supporters believe could address issues ranging from racial justice to climate change and the power of big finance.
A public bank, which serves as a depository bank for public funds, is owned by a government unit and “mandated to serve a public mission that reflects the values and needs of the public that it represents" according to The Public Banking Institute.
City Councilmember Derek Green introduced legislation to establish a Philadelphia public banking authority on Jan. 28, which would function as a lender to private individuals and businesses, as well as the City of Philadelphia. Green’s legislation, which has received 11 cosponsors including City Councilmember and 1993 College graduate Helen Gym, is the culmination of years of activism by the Philadelphia Public Banking Coalition, which is led by multiple Penn alumni.
“There are so many things a public bank can do,” 1966 College and 1968 Wharton MBA graduate Peter Winslow, who is a member of PPBC, said. “But we can start by taking job creation in the inner city community in conjunction with environmental issues.”
The PPBA would be mandated to focus on lending to individuals and institutions that prioritize progressive policy goals, including renewable energy, low-income housing, and supporting businesses in historically marginalized communities. It would be overseen by a 13-person Board of Directors and be audited annually by the City Controller, who functions as the chief accounting officer of the City of Philadelphia, as well as a federal regulator.
In recent years, public banking has grown popular across America. Bills in California and New Jersey have already passed their state legislatures, though no new public banks have been established yet.
The public banking movement has successfully built a broad coalition of activists by appealing to different movements and political ideologies.
“There were Republicans, there were Democrats, there were Libertarians, and they were all interested in this idea of public banking,” 1968 College graduate and PPBC member Constance Billé said, recalling the first National Public Banking Conference that she attended in Philadelphia in 2012.
The only public bank remaining in the continental United States is the State Bank of North Dakota, which activists in Philadelphia have used as a model for the PPBA.
“North Dakota’s bank has been more successful than Wall Street,” Billé said. “They’re making 17% interest on their money.”
Winslow first saw the vulnerability of large financial institutions after the 2008 financial crisis, which many blamed on reckless speculation in the housing market by Wall Street.
“This rot here — how can we deal with the rot?” Winslow remembered thinking. “There’s a real nobility, to society, in terms of finance that somehow got lost. There’s been a divorce of the financial world from the real world, and how wealth can affect people, individuals, and the way society works.”
Though disillusionment with big finance brought Winslow to public banking, Green said he first considered the idea while working as a small business lender, when he was faced with the legacies of discriminatory banking practices.
“I really got a more upfront and personal understanding of the issues of redlining, access to credit, and the impact that had on small businesses, especially businesses of color, and, more specifically, African American-owned businesses,” Green said.
Redlining is the discriminatory practice of denying financial services to people in certain areas based on their race or ethnicity, which has most severely impacted residents in minority neighborhoods — leading to much of the housing segregation that exists in America.
Wharton junior Javion Joyner, director of Black Wharton Consulting, a club that consults for minority-owned businesses in Philadelphia, said that a local public bank would help act as a corrective for decades of discrimination in the city.
“The public bank is going to fill a gap,” Joyner said. “It’s going to support Black communities in a way that I’m not sure private institutions can.”
In a September 2020 study by the consulting firm HR&A, the gap between the total amount in loans requested by small businesses in Philadelphia and the amount granted was estimated to be $840 million. This gap had a particularly severe impact on communities of color, the report found.
“What has happened historically is that larger banking institutions, they have access to resources, but have a lower risk tolerance level, in reference to providing credit,” Green said, “Whereas smaller financial institutions like a credit union or a community bank or a community-owned financial institution, they may have a higher risk profile but less resources to lend.”
Green believes that PPBA can occupy the space in between large and small financial institutions and use public assets to help small businesses gain credit by underwriting their loans.
Gym, who supports of Green’s bill, wrote in an emailed statement to The Daily Pennsylvanian that a public bank can help address many of the city’s needs.
“With a public bank, Philadelphia can provide the small business loans long denied to Black communities, and the low-cost infrastructure investments needed for a local Green New Deal, and a campaign to build modern, 21st-century schools,” Gym wrote.
Though public banking has gained a broad base of support in Philadelphia, some still doubt its effectiveness.
In a “Pro/Con” piece in The Philadelphia Inquirer, CEO and President of the American Bankers Association Rob Nichols argued that a public bank would be too costly for taxpayers and would also be unable to extricate itself from the whims of politicians.
Joyner said that, without proper oversight, public banks could engage in corruption or loaning practices similar to what caused the 2008 financial crisis. Wharton junior and President of Penn Microfinance Jason Lipsay agreed, adding that he worries about inefficiencies that tend to plague institutions operating in the public sector.
Still, advocates of the public banking movement believe that the benefits outweigh the risks, especially when considering the role public banks could play in addressing global issues.
“These are things that could be financed by a public bank, and a public bank stimulating and organizing the financial ecosystem overall to provide financing necessary to make these changes in society,” Winslow said.