San Francisco Green-Lights Nation's First City-Run Public Bank

After years of pressure from financial equity advocates, San Francisco supervisors this week unanimously approved a plan for the city to begin the process of creating the nation’s first publicly owned municipal bank.

“We’re thrilled, this is a big milestone,” said Misha Steier, an organizer with the San Francisco Public Bank Coalition, which for years has been lobbying city leaders to launch a public bank. “We’re really optimistic that this is something that’s going to cut across the typical bipartisan divide in San Francisco of the progressives versus moderates. We’re seeing folks from all camps interested in this.”

Tuesday’s vote carves a path for San Francisco to form a new agency to oversee the creation of the bank, with the goal of building a public alternative to the private banking systems that now manage the millions of dollars the city receives from taxpayers. The bank could finance housing for lower-income residents, small businesses and other projects beneficial to the community that private lenders often shy away from. And under this model, unlike most conventional financial institutions, most of the profits generated from loans and money-handling would be reinvested in the bank, rather than going to private shareholders.

In 2019, California lawmakers passed Assembly Bill 857, which enabled local governments to charter public banks. In April 2022, San Francisco launched a working group to study the idea, made up of community leaders, bankers, financial experts and small-business owners.

With the approval from the Board of Supervisors, the work of building the bank from the ground up begins.

Next, the city has to pass an ordinance that would create the publicly-owned financial corporation. After a few years of operations and investments, the corporation would then apply to be a FDIC-approved bank.

Currently, residents won’t be able to open up a checking account with the bank — although that could change in the future. Instead, the plan involves working with other local banking institutions, like credit unions, to begin investing in the coalition’s three main areas of focus: green infrastructure, affordable housing and small business.

“Perhaps you won’t be able to go to the public bank to get a mortgage, but your local credit union will have the capacity to make that mortgage cheaper now that they’re partnering with us to get that cheaper credit,” said Steier.

Advocates with the San Francisco Public Bank Coalition, who have been organizing since around 2017, want the public bank to refrain from investing in sectors like fossil fuels, prisons and weapons, and instead support land trusts and community-benefiting needs. Actual investments and programming however will be up to professional banking staff once the agency has opened.

The bank would be independently run by professional bankers and have public oversight. But an exact timeline for when the bank will roll out is not yet clear.

Supervisor Dean Preston said he hopes to propose legislation to create the financial corporation by the end of the year. Time is of the essence, he said, because there are unique opportunities for funding that could bolster initial investments, including President Joe Biden’s Inflation Reduction Act.

“We now have a plan, a road map for doing this, and the next step is to turn this plan that has been unanimously accepted by the Board of Supervisors into an ordinance that creates these different structures,” Preston told KQED. “Our hope is that we can do that relatively quickly. We want to make sure that the city is competitive for some big chunks of money that are available at the federal level.”

Supporters have highlighted the instability of the private banking industry, from the 2008–2009 financial crisis to more recent challenges like the collapse of local Silicon Valley Bank. The bank’s closing also impacted or delayed several affordable housing projects.

“These things just highlight some of the weaknesses of a system that is so heavily dependent on private for-profit Wall Street, [and] national and international banks for capital,” Preston said. “It certainly would be a positive thing to have public bank financing for things like affordable housing instead of just relying so much on the private sector, as we have seen multiple scandals and collapses in the private banking sector.”

The plan comes as the city continues to recover from economic hardship brought on by the COVID-19 pandemic. Preston added that private banking has left many San Francisco residents, particularly communities of color and small businesses, excluded from accessing equitable financial services like loans and mortgages.

Studies have shown that in San Francisco, Black and Latino households are disproportionately more likely to be denied home purchase loans. Research by the nonprofit Greenlining Institute found that Black San Franciscans, despite making up 6% of the local population, receive less than 1% of home purchase loans in the city. Latino households make up 16% of the population, but receive only 4% of such loans.

“This has led to potential ‘banking deserts’ where communities lack easy access to personal, business, and other financial services with bankers with local relationships and knowledge, a trend that has disproportionately affected low-income and minority populations,” the plan reads. “This lack of services can lead customers to payday lenders, check cashers, and other financial services providers who offer predatory and harmful products.”

While North Dakota already operates a statewide public bank, San Francisco would be the first-ever city in the U.S. to operate one.

Interest in a statewide public banking option is also bubbling. In 2021, Gov. Gavin Newsom signed Assembly Bill 1177 into law, which called on the state to analyze what a statewide public option for personal financial services could entail. That analysis is due by July 1, 2024.

“I would love to see a vibrant public banking institution at the state level, and any city that wants to have their own public bank as well,” Preston said. “That would be the best-case scenario.”