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Would a Public Bank Work in Chicago?

Two candidates are running on a “Bank of Chicago,” which could finance the local marijuana industry and issue low-interest loans to students and entrepreneurs.

Amara Enyia (left) and Ameya Pawar, running for mayor and treasurer respectively, are stumping on a public bank.   Photography: Chicago Tribune

Amara Enyia, who’s running for mayor, and Ameya Pawar, who’s running for city treasurer, want to make Chicago more like… North Dakota.

One of America’s smallest, most conservative states may seem like a strange model for one of its biggest, most progressive cities. A hundred years ago, though, North Dakota was a pretty radical place. Its hard-pressed wheat farmers got tired of paying 12 percent interest to greedy bankers here in Chicago, so they voted to charter a state-run bank, which offered low-interest loans and sold foreclosed farms back to families who had lost them.

The Bank of North Dakota, which has assets of $7 billion, is still the only publicly owned bank in the United States. Could a Bank of Chicago be next?

Both Enyia and Pawar say a public bank could offer low-interest student loans, invest in local projects currently redlined by private bankers, and service the cannabis industry, which most federal banks are reluctant to do business with.

So where does the money come from? A public bank would be capitalized by shifting the City of Chicago’s deposits from the private banks where they’re currently held. As a not-for-profit institution, a public bank would lack the money-making motive that drives Bank of America or JP Morgan Chase, so it could offer loans at better rates. Pawar even sees it undercutting the federal government in the student loan racket.

Sallie Mae, the federal student loan agency, charges between 6.125 percent and 12.5 for loans. Pawar considers that predatory.

His idea: A public bank could refinance student loans at 5 percent, tying the rate to city residency. Such a deal wouldn’t just motivate college grads to stay in Chicago, it would leave them with more money to spend at local businesses.

Money spent on student loan interest, says Pawar, is “money not available for you to buy a home, or for child care." The difference between repaying the feds and repaying the city “could be hundreds of dollars a month. That’s hundreds of dollars that goes back into Chicago’s economy.” Not to mention, the city would collect interest on those loans.

If Gov. JB Pritzker legalizes marijuana in Illinois, as he’s proposed, a public bank could also handle that industry’s assets. Marijuana is still considered an illegal substance nationally, so most federally chartered banks refuse to deal with even legal marijuana suppliers, forcing them to operate as cash-only businesses. A city-owned public bank would be chartered by the state of Illinois, providing an end-run around federal regulations.

“That money could finance affordable housing and capital for small businesses in communities ravaged by the War on Drugs,” Pawar says.

As executive director of the Austin Chamber of Commerce, Enyia knows how difficult it is for small businesses to secure loans, especially in underserved neighborhoods. A public bank would have a motivation to float those loans, since they would be investments in the city’s economy.

“With a public bank, there’s no incentive to make money; it’s all about making sure the city is fiscally sound,” Enyia says. “If we’re truly interested in expanding the small business sector, we have to be able to issue low-interest loans to entrepreneurs in the city. We have to assume that risk, because we know that’s an investment on our end in having a more mature, robust business sector.”

Pawar sees a public bank financing affordable housing, which private banks are reluctant to touch. And Enyia sees a public bank financing the city’s own infrastructure projects, which are now often paid for with bonds.

“You can fund those infrastructure projects at very low interest rates, and any interest that’s generated is recirculated back into the bank, so you’re recirculating it back into the city’s coffers,” she says.

If a public bank is such a great idea, why is there only one in North Dakota? For one thing, the private banks don’t like it. Private banks have a lot of money, and a lot of lobbyists. Lynn Frazier, the governor who established the Bank of North Dakota, was recalled in a campaign led by the state’s business interests.

New Jersey Gov. Phil Murphy, however, ran on a platform of getting his state into the banking business, and two members of San Francisco’s Board of Supervisors are pushing for the idea. Establishing a public bank here would require a citywide referendum, which Pawar hopes to place on the 2020 ballot.

“The banks have nothing to fear,” Pawar says. “If you believe in capitalism, you believe in competition.

“The government is already in banking,” he adds. “We bailed all of them out a few years ago.”

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