State-Owned Public Banks

Position

• ICBA opposes the formation of new public banks or other types of public retail financial service providers, whether they are owned by states, municipalities, the United States Postal Service (USPS), or any other federal or quasi-federal instrumentality.
• ICBA opposition extends to the creation of special purpose banks to service the cannabis industry or a National Infrastructure Bank.
• Such banks would directly compete with community banks, diverting deposits from local communities and create undue taxpayer risk. Financial services are best provided in a competitive, private, and free marketplace that openly and efficiently benefits customers.
• Community banks and other financial institutions continue to offer low-cost financial services to underserved communities to help them break from the debt cycle of payday lenders.

Background

In recent years, several states and localities around the country have considered proposals to create public banks to operate in competition with the thousands of existing private, for-profit, taxpaying banks that serve our communities.

Public banks create undue risk and exposure for taxpayers. Their deposits, if they choose to forgo or are not provided access to FDIC deposit insurance, would be backed by the full faith and credit of the state or municipality that chartered them, posing substantial risks to taxpayers, a risk heightened by lack of federal supervision. Further, such banks would be subject to political manipulation as favored groups would receive credit and other services on preferential terms. Credit should be allocated on an impartial basis to ensure sound lending and a competitive economy.

The creation of state-owned banks to serve the cannabis industry is not a solution that would resolve the fundamental conflict between federal and state law. Community banks must be allowed to serve the cannabis industry in states that have legalized cannabis, which would obviate the need for state-owned banks for this purpose.

Certain policymakers are supporting a proposal to create a national infrastructure bank. Such a proposal would create distortions in the municipal bond market and disrupt the financing of local services and investments. Further, the municipal bond market, from both a supply and demand perspective, has historically worked well. There is no demonstrable need for a taxpayer-backed national infrastructure bank, and one was not included in a recently enacted $1.2 trillion bipartisan infrastructure package without inclusion or mention of a National Infrastructure Bank.