Public Banking:
Models and Possibilities
Ellen Brown, JD
Public Banking Institute
TASC, Dublin, Ireland
November 10, 2014
Globally, nearly 40% of banks are publicly-owned.
Mainly in the BRIC countries, which escaped the credit crisis.
The largest banks globally are state-owned, including --
• The two largest banks by market capitalization (ICBC and China Construction Bank)
• The largest bank by deposits (Japan Post Bank)
• The largest bank by number of branches (State Bank of India)
• The largest development bank (China Development Bank).
• The world’s seven safest banks are also publicly-owned, leading with KfW, Germany’s public development bank.
“Economic miracles” occur in countries with strong public banking sectors.
• China
• Korea, Taiwan, Singapore, Hong Kong
• Post-war Germany and Japan
• Brazil, Costa Rica
China: global leader in rapid development
Korea: “Korea’s progress is as if Haiti had turned into Switzerland.”
• So says Ha-Joon Chang in “Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism”
• Per capita income increased 14-fold in 40 years, something the U.S. took 1-1/2 centuries to do.
• How? “The government owned all the banks, so it could direct the life blood of business – credit.”
How public banks help to create economic miracles
1. Bypass the private financial middlemen
draining off 30-40% of national profits.
2. Counter-cyclical lending, aimed at sectors most in need.
3. Cut out interest: government owns the bank, so save 35-40% on the cost of public projects.
Rent in Public Housing Cost of interest on capital 77%
Drinking Water Cost of interest on capital
38%
Garbage Collection Fees Cost of interest on capital 12%
From Margrit Kennedy, http://www.monneta.org/upload/pdf/Pres_MK_CompC.pdf
Interest doubles infrastructure costs
Bay Bridge retrofit:
principal, $6 billion;
interest, $6 billion.
Bullet train:
principal, $9.95 billion; interest, $9.5 billion
The German Sparkassen Model – Focus on real economy
Sparkassen have a 42% market share
of business financing
70% market share in SME finance
Germany:
Local businesses (esp. SME) are
financed by local banks:
Cooperative Banks and Sparkassen
Sustainability – Professionalism – Public Welfare
Sparkassen and Company Loans – No Signs of a Credit Crunch
69.966.764.262.1
58.9
75
50
25
0 2008 2009 2010 2011 2012
New loan commitments of Savings
Banks to companies and Self-employed,
in billion €, change in %
+9.4 +5.5 +3.4 +3.8
+4.8
* Including residential construction; excluding other financial intermediaries and insurance corporations,
source: Deutsche Bundesbank
42,1
27,5
14,0
16,4
Market Shares for Loans to Companies
and Self-Employed* in %, 2012
* Without commercial housing
Source: Bankenstatistik Deutsche Bundesbank and own calculations
Stand 31.12.2012
Rest of the banking sector (other commercial banks, foreign banks, KfW etc.)
4 largest commercial banks
Cooperative banks
Sparkassen-Group
The Strategic Banking Corporation of Ireland – a great fit
Another model: The Bank of North Dakota, the only US
state-owned depository bank. • ND also has:
• the nation’s lowest unemployment rate
• one of the lowest foreclosure rates
• lowest default rate
• only state to escape the 2008 credit crisis
How it works:
• Depository for all state revenues. • DBA of the state. • Capitalized with a bond issue. • Doesn’t compete but partners with local banks to
increase local lending. • Reduced banking costs: no bonuses, fees,
commissions; no advertising; no branches. • Dividends and cheap credit lines replace rainy day
funds.
The BND: profitable, safe, sustainable
• Pays a dividend of $30M/year (pop. 672,000).
• ROE 2008 of 17-26%.
• Competitive interest on state deposits.
• Low-interest loans for local projects.
• Underwrites municipal bonds.
• Mandate to serve the public interest.
The U.S. public banking movement -- 20 states have introduced bills.
Banking crises are making public banks more popular.
• Safer for depositors.
• Countercyclical lending allows sustained growth.
• Less corrupt, more efficient, more profitable.
For more information – PublicBankingInstitute.org
WebofDebt.com EllenBrown.com