Los Angeles City Council President Herb Wesson said Monday that he will propose establishing the city’s first public banking institution.
Wesson said he’ll file a motion this week calling for the council to authorize a search for a “banking expert” to help the city get a public bank up and running. The move comes several days after Gov. Gavin Newsom signed into law AB 857, which allows statewide establishment of public banks.
“I do believe that this is the way that government is supposed to work, where we partner with the people … together trying to affect change,” Wesson said. “Rarely do people have the chance to make history, and I just want to say to everyone standing beside me and behind me, that you folks have made history.”
Public banks are intended to focus local investment by offering business loans and could be used to finance public supportive housing among other projects, according to proponents of the system.
The public banking system gained national notoriety in 2016 after activists at the Dakota Access Pipeline called for divesting from large banks that financed portions of the project. North Dakota has had state-run banks for the last 100 years.
Assemblyman Miguel Santiago, D-Los Angeles, who supported AB 857, said public banking was the one controversial issue he’s seen where the public’s voice was effective enough to sway the Legislature’s vote without a lobbyist’s involvement.
Trinity Tran of Public Bank LA and the California Public Banking Alliance said divesting from public banks could keep the money within local communities. The city could also partner with credit unions, and the bank would be a government nonprofit organization overseen by an independent board of directors and managed by professional bankers.
“Our cities in California, cities across the nation, spend billions in debt services to borrow money from Wall Street banks that leverage our public funds to finance these destructive, harmful industries that our communities actively fight against,” Tran said.
Assemblyman David Chiu, D-San Francisco, said that although the governor has signed his bill, banking lobbyists are likely to try to convince the City Council not to create a public bank.
The California Bankers Association opposed the bill’s signing, saying public banks are risky and that they could undermine the financing of future municipal projects.
“Despite the rhetoric from public bank advocates, Californians are not clamoring for a public bank option,” according to a CBA statement. “A poll conducted earlier this spring by FM3 Research revealed that 60% of Californians do not support a public bank, and nearly 90% are satisfied with their current banking options. Voter disdain for a public bank option was also validated last November when the voters in Los Angeles soundly rejected the idea.”
Los Angeles voters rejected a 2018 ballot measure — by a 56%-to-44% margin — that would have cleared the way for creation of a public bank.
In 2017, the city of Los Angeles divested its funds from Wells Fargo after the bank was fined billions of dollars for creating illegal customer accounts.