AUSTIN, Texas — Austin City Council members are starting the process of exploring the idea of creating a "public bank".
If you've never heard of that, it's because only one exists in the U.S.
Other cities like Philadelphia, San Francisco and Los Angeles are currently trying to establish their own.
"A public bank is a bank that's owned and operated by a public institution,” Councilmember Zo Quadri at Thursday’s meeting. “With the intent of this item, that would be the city of Austin and it would operate in the public interest."
Qadri presented the item in hopes of cheaper banking services and using profits for community projects. But how is it different from a traditional bank?
“It would be the governance, you know? Who is the bank responsible to,” Matt Patton, executive vice president at Angelou Economics, said.
According to Patton, traditional banks are typically funded through private shareholders that you’re responsible for paying back at a certain time, amount and way. But a public bank would be owned by and for Austin.
Patton said there could be more flexibility over interest rates, loan payment terms and choosing which projects to fund.
“They’re able to extend those offers to folks that otherwise might not be able to have access to capital to work on those projects," Patton said. “In that way, it could really help a local economy grow."
The only operating public bank in the U.S. is in North Dakota. The Bank of North Dakota was established around 1920, at a time when rural farmers felt disadvantaged by larger banks.
David Flynn, a professor of economics and finance at the University of North Dakota, said it still helps with economic vitality to this day.
“They still offer deposit services that you typically would expect to get at a financial institution,” Flynn said. “One of their big areas right now is student loans."
Flynn said while their bank has survived for so long due to being able to adapt to market trends and the needs of the community, their public bank doesn't have everything a typical bank does.
“They do not have Federal Deposit Insurance Corporation insurance. They're backstopped by the full faith and credit of the government of North Dakota,” Flynn said.
That means there aren't federal protections for depositors if the bank should fail. Flynn said they also don't offer certain kinds of loans, like mortgages, and accounts can only be used at the Bank of North Dakota.
Flynn said the city needs to have very specific goals if they want to create a public bank.
“It sounds good to say, 'We have a publicly backed financial institution. It’s not going to act in the shareholder’s interest, it’s only going to act in the public interest,'" Flynn said. "But how do you define public interest and how do you protect public money at the same time? Those are key questions that you have to answer."
Qadri said during the meeting that they ideally want to create investments involving climate change, supporting economic growth and housing. He said they still need a feasibility study to be done to determine if the city can support creating a public bank, and how they will protect customer’s money.
Qadri was backed up by Councilmembers Ryan Alter, Vanessa Fuentes and Jose ‘Chito’ Vela. Councilmember Mackenzie Kelly voted against the public bank item, while Councilmembers Paige Ellis and Alison Alter abstained from voting.
