In late 2009, Arianna Huffington made an appeal to Huffington Post readers. She described an idea that came up at a dinner party for countering Wall Street’s growing power over Main Street.
“The idea is simple: If enough people who have money in one of the Big Six banks . . . move it into smaller, more local, more traditional community banks, then collectively we, the people, will have taken a big step toward re-rigging the financial system,” Huffington wrote in a joint column with Rob Johnson, a fellow dinner party attendee. “Let’s turn big banks into smaller banks. We’ll all be better off—and safer—as a result.”
The dinner party guests coined the campaign “Move Your Money,” set up a website, and promised lots more to come. But little did, and the movement quietly disappeared. Its website, MoveYourMoney.info, now belongs to a sports gambling blog written in German—and Huffington has moved on to urging people to get more sleep.
Stacy Mitchell is not surprised. The co-director of the Institute for Local Self-Reliance, a nonprofit focused on strengthening local communities, notes that moving one’s bank account or mortgage “is not as simple as changing grocery stores.”
To succeed, Mitchell says, campaigns to promote banking alternatives must be localized. It’s easier for people to see how making the choice to work with a local banker—and encouraging neighbors to do the same—helps their community flourish. She thinks the public is ready to embrace these alternatives, given high levels of public dissatisfaction with big banks.
Nearly twenty states have considered implementing public banks in the past six years, according to the Public Banking Institute. The group, founded by lawyer and author Ellen Hodgson Brown, envisions “a transformed monetary and banking system that functions in the public interest” and aims to return control of money and credit back to states and communities.
But so far, there have been only a few successes, due in part to pushback from the banking industry.
“Basically, they’ve put their fingers in the gears . . . to slow down the progress,” says Walt McRee, chair of the Public Banking Institute. He says the political influence of large banks has sabotaged or limited many proposals.
For instance, in Colorado, a group petitioned for a public bank referendum to be put on this November’s ballot. The Title Board of Colorado approved the addition, but McRee says the referendum was knocked off the ballot due to a technicality. Lawmakers in Massachusetts commissioned a study on the feasibility of a public bank. But the Federal Reserve Bank of Boston had already completed its own study, deeming a state-owned bank unnecessary precisely because it would duplicate big banks’ efforts.
Currently, the only public bank in the country is in North Dakota—founded in 1919 by early progressive populists in a sparsely populated farming and mining state.
Here’s how it works: When most states receive tax revenues, they send the money to out-of-state banks or investment houses. But in North Dakota, tax revenues are legally required to be deposited into the Bank of North Dakota, which uses the money to assist smaller banks, fund infrastructure upgrades, and offer student loans.
The presence of a public bank has also buoyed North Dakota’s smaller financial institutions. Community banks and credit unions hold more than 80 percent of the state’s assets. In every other state, these figures are flipped. This is because the Bank of North Dakota supports—but doesn’t undermine—local institutions. It buys their mortgages and partners with them on loans, but doesn’t compete with them. It doesn’t even have any branches. North Dakota has the most small banks per capita of any state in the country.
Few people took notice of the Bank of North Dakota, established nearly 100 years ago, until the financial crisis hit in 2008. Suddenly, it became clear that not having all your financial assets tied up in big banks was a positive. North Dakota rebounded from the Great Recession better than any other state.
“Since the crisis,” Mitchell says, “people have been very aware that we cannot simply leave our banking system in the hands of Wall Street.”
As Huffington pointed out, change is also possible at a more grassroots level, in the choices made by individual banking customers who opt for local institutions over major players. You don’t need to wait for your state to embrace—or reject—the idea of public banking to decide to move your money.
The Institute for Local Self-Reliance says consumers can have the biggest impact by choosing a small institution with a strong community presence—ideally, local headquarters and concentrated branches—that does a significant amount of small business lending. BankLocal is a tool that helps consumers easily compare options using publicly available lending and asset data.
Some customers stick with big banks out of fear of losing conveniences like mobile banking and plentiful ATMs. But Mitchell says many community banks and credit unions offer the same services. The differences are small “compared to what you gain in terms of savings and also knowing that the money you have on deposit is going to work in your local economy and create jobs locally.”
Community-based financial institutions account for 60 percent of small business lending despite holding only a small fraction of the banking assets in most states. “Most of the job creation is coming from them,” Mitchell says.
Still, McRee says, “community banks are getting eaten up by the big banks.” They could use a local public bank partner to secure and support them. He believes this could result in lower borrowing costs and lower taxes for businesses and residents. With public banks, tax revenues are available to fund public projects. “Basically, the people then profit from borrowing their own money—which is a beautiful, virtuous cycle.”
Cara Lombardo was an editorial intern at The Progressive.