We Must Change the Public Bank Conversation

The piece below is a guest blog from the Alliance for Local Economic Prosperity and is explicitly designed to respond to misinformation being disseminated by lobbyists for the community banks. That misinformation is clearly having an impact as in two Zoom Conversations held on Jan 14 and 15, Speaker Egolf and Rep. Montoya parroted the message from those lobbyists. The piece below makes an excellent case for the Public Bank generally and also describes how it would not compete with community banks. From AFLEP:

New Mexico is on the cutting edge of a national banking revolution. There is a movement growing to establish public state-owned banks from coast-to-coast and we have an opportunity to fundamentally change New Mexico’s finance system for the better.

Implementing public banks does have its challenges, and unfortunately opponents of the idea are using outdated and erroneous information to mislead legislators and the public. We have learned important lessons from other states and have crafted the Public Banking Act in New Mexico to attempt to include community banks and credit unions as partners, and not as adversaries or competitors. The goals of a public include helping community banks and credit unions grow their customer bases, provide more loans to a wider group of local businesses and institutions, and allow New Mexico to think bigger about funding its economic future.

Information being shared by the Independent Community Bankers Association of New Mexico is simply wrong and based on old opinions and past legislation from other states.  It is not based on what we envision for New Mexico, which at its core is more small business and community-based development.

Community bankers were afforded every opportunity to participate in the development of the Public Banking Act, and they have not. New Mexico has unique economic needs and the fact is that conventional ways of banking and their limited capacity simply are not adequate. Older business models do not serve the needs in 2021, and today’s challenges require new models and smart solutions that a public bank can provide. In addition we offer the opportunity to expand the capacity to further that development.

Yes, community banks help, and the facts are that a public bank will help them lend more, develop more customers, and help more New Mexicans achieve the success they desire.  The outcome?  Thriving New Mexico communities.

How the Public Banking Act Will Help

  • Community Banks and Credit Unions did lend $1.2 billion in PPP loans in New Mexico in 2020; that comes out to about $570 per resident. But in the state with a public bank, North Dakota, small businesses were able to get $1.7 billion; that comes out to roughly $2,200 per resident thanks to the early coordination of, and existing relationships with, the Bank of North Dakota.
  • In New Mexico community banks did help 9,500 small businesses. But, in the state with a public bank, North Dakota, 20,000 small businesses were able to get help, thanks to the early efforts of the Bank of North Dakota.
  • New Mexico has 154,000 small business. Helping even 10,000 more would have saved thousands of jobs and dreams early in the pandemic.
  • While Community Banks do have adequate (and even excess) capital, liquidity does not mean they make the loans needed to spur the economic development we need. Simply ask them how many of their loans are made to businesses that do not include a personal guarantee, something that is extremely problematic for the vast majority of New Mexicans.
  • A Public Bank can offer additional security on a loan to help our local financial institutions make the loans they won’t/can’t make today and increase the number of qualifying loans, number of customers, and help more New Mexicans achieve their dreams. Despite the capitalist necessity of being driven by financial returns to their owners, we believe that deep down New Mexico Community Banks and Credit Unions are in fact invested in their communities and want to see their communities prosper, and that’s exactly why the public bank wants them to be partners.
  • The Public Bank does not violate the Anti-Donation Clause because the loans are a service. “Bankers banks” are key to helping banks provide the lending capacity we need them to have. Nobody has ever said we need LESS access to capital. Instead, more capital lowers barriers for everyone.
  • Loans are made through contractual agreements with interest paid to the state and a partner bank.  The bank earns money.  It doesn’t gift money on its deposits.
  • Every community sees small businesses struggling, infrastructure needs that aren’t met, and dreams unfulfilled, especially in our poorest communities. A state-owned bank will do more to help increase community wealth that will support their thriving
  • A Public Bank does not direct municipal deposits away from community banks. It only affects the global banks that work at the state level.  Over time revenue deposits in the Public Bank will increase while they decrease in the global banks.
  • An initial $50 million transfer out of the state’s $2.3 billion daily deposits with a global bank is a worthwhile investment in New Mexico. Using the state’s money to make more money is smart government.
  • The State Bank would be regulated by the same state and federal laws that community banks abide by.  The state bank would abide by the same FDIC rules that every other bank in the nation does.

A Public bank does:

  • Enhance our resiliency.
  • Build on our small business growth.
  • Provide more equitable access to funds.
  • Give people opportunity.
  • Raise funds without raising taxes.
  • Allow new, innovative, lending programs.
  • Provide Smart Government for New Mexico.

This is a “yes and” proposal. While there are several state agencies that already provide funds, the Public Bank will both expand and complement what they do to  help grow business and employ more New Mexicans with new and innovative programs they cannot offer.  A State Public Bank will bring increased focus, efficiency and effectiveness to the state’s finance system.

Product or ServiceOffered by a State BankOffered by State AgencyOffered by NM Community
Accepts DepositsOnly accepts deposits from State TreasurerYes (STO)Yes
Processes WithdrawalsNo (doesn’t compete with community banks)Yes (STO)Yes
Cash Management ServicesNo (doesn’t compete with community banks)Yes (STO, SIC)Yes
Issues & Sells Tax Exempt BondsPossible to take out bonds to invest in state projectsYes (NMFA, NMHELC)No
Offers Small Business LoansUnderwrites and supports banks and credit unionsYes (NMFA, NMHELC, NMSBIC, SIC)Yes
Provides Equity Financing
(Directly or Indirectly)
Leverages funds 8 to 10 times through access to  Federal ReserveYes (NMEDD, NMFA, NMHELC, NMSBIC, SIC)Yes
Offers Commercial Real Estate Loans (Directly or Indirectly)Possible in the futureYes (NMEDD, NMFA, NMSBIC, SIC)Yes
Offers Mortgage Loans Possible in the futureYes (NMMFA)Yes
Offers Tax Credit Incentive LoansPossible in the futureYes (NMFA)No
Pays Taxes on Income/EarningsReturns money to the bank operating fund for more loansNoYes
Helps State Agencies Achieve Financial & Socio-Economic GoalsThis is the mission of a state bankThey can use the bank to increase their capacitySometimes
%d bloggers like this: