The Nuts & Bolts of Public Banks
On this page we will explore some of the issues associated with the physical manifestation of Public Banks … the financing, the essential startup costs, the software and hardware necessary for a functioning bank that takes deposits, issues loans, and provides basic banking services.
How do Private & Public Banks compare?
All banks are depository institutions that take loans from the public and or government. Moreover, according to international banking expert, Richard A. Werner, banks create new money whenever they issue a loan. A public bank is no different. What separates a private bank from a public bank are a few key characteristics:
A private bank is a profit making institution whose profits are shared with the bank’s stockholders, and maximizing profit is their prime directive.
In sharp contrast, a public bank has a much different prime directive: to serve the community that the public bank represents; profit becomes only a secondary concern and is shared with the governmental institution that established it.
A private bank borrows other people’s money as a deposit taking institution; that is what happens whenever we make a ‘deposit’ in the bank — we loan money to the bank. Because private banks are using other people’s money, that are required by law to collateralize their deposits as security against a run on the bank.
Public banks are owned by the city, county, or state and will typically have a single depositor, namely the government of the city, county, or state who are both the guarantor of the bank “by the full faith and credit of the government” that owns the bank, And because the primary depositor and the owner of the bank are the same, no collateral is required because it makes no sense for you to collateralize your money… it’s redundant and regressive to do so.
Moreover, no run on the bank can happen because of this common ownership and public responsibility of the local government, and because a properly chartered public bank would elucidate and support the provision that a public bank cannot be sold, and will forever remain the property of the people of the jurisdiction it serves, administered and formulated into law by the government that established its local public bank.
Public Banks act in their day to day operations independent of political control.
Obtaining a Charter for a Public Bank
All banks have Charters that define the reason for their existence.
Capitalization
The bank will need startup capital to pay for salaries, office space, computers, software and hardware, and other incidentals in the first year of operation.