Publicly Owned Banks: A Multi-Purpose Solution

Dependence on fossil fuels has not only damaged the global environment, it has also become a major factor in the devastation of the world economy. Most of us accept and support the idea that we need to convert to renewable energy if we are to heal our environment. The fact that doing so could launch a positive transformation in our economy at the same time, and create millions of new green jobs for all of us, is even better.

Yet transitioning to renewable energy will require a lot of money. Where will it come from? I have not seen any of that stimulus money. Have you? And what about the Wall Street bankers who got those mind blowing bailouts that are costing us, our children and our children's children obscene amounts of money? Dream on. They and other traditional financial sources are not stepping up to support that objective.

Is there any other solution? You bet there is and it comes from an unlikely source -- us!

To understand how, lets take a look at some key concepts that we can build upon, beginning with the ideas put forth by attorney Ellen Brown through her book Web Of Debt and her many articles found on www.webofdebt.com We feel that Ellen is right on target, but in order to realize her goal faster and easier, we've added one more element. So let's see what she proposes and what we would add to her concept.

Ellen's analysis and solution center around three key ideas:

1. The vast majority of money in circulation comes from loans made by banks (not the government) and the money for those loans is created with accounting entries only.
2. Those banks are corporations who represent their owners and not the public.
3. The government should have the right to create money for society, not just private industry, with the profit going to the benefit of the public. Having the government own banks would satisfy that objective and serve the public's need.

Why is a government-owned bank significant and what does that have to do with energy and the greening of our economy? The Bank of North Dakota serves as a good model. Facing similar credit conditions to those plaguing the economy today, North Dakota formed its own bank in 1919.

State law requires the state to deposit its revenues in its own bank. Those deposits allow North Dakota to use existing bank lending¹ laws to create "new money" in the form of loans to itself, businesses, farmers, students and others, and drive its own economy in the direction it chooses, for example, with 1% loans to farmers. If they can do it, so can other states and the federal government.

Using green banks to green our economy To achieve the twin goals of getting our economy moving again and protecting our environment, green lending is an ideal goal for government-owned banks that could provide the financing to help convert our economy to renewable energy and conservation. However, getting the requisite legislation to enable such banks passed is difficult. Why? Money and the banking corporations would oppose it at every turn. Thus we can neither expect a solution from the big banks who created our economic problems, nor from the one group that should be there to protect the public interest -- the government. Is there another way? The solution is in our hands

There is one group we can turn to for a solution -- us!

We can use the one other institution dedicated to exclusively serving the public good -- the non-profit corporation. Under the very same rules and systems governing private banks, we can setup publicly owned green banks under non-profit corporations. Private banks could not oppose these green banks without damaging their ability to maintain their own banking business.

But can a non-profit own a green bank?" Yes! They can own banks just like any for-profit entity. In that case, why hasn't anyone done it? They have -- in Oakland, CA. Here's how they did it

A bank owned by a non-profit

A non-profit corporation was formed called OneCalifornia Foundation. The foundation established a separate, wholly owned, for-profit corporation, OneCalifornia Bank, set up with millions of dollars in donations from a wealthy couple. Its mission is to "improve economic opportunity for low- to moderate-income communities," and all profits flow up into the foundation for further benefit to the community.

In OneCalifornia Bank we see a model for other such banks. Establishing a bank is not all that difficult, with the key difference that instead of raising capital from private investors, funds need to be raised through non-profit fundraising mechanisms.

One good way to blend Ellen Brown's idea of a government-owned bank with this non-profit approach, is for the state to pass a bill allocating the approximate $10 million dollars needed to establish such a bank for the public's benefit and provide those funds as a grant to a non-profit. This kind of bill would be easier to get through the legislature (even in California) than a bill to establish a state-owned bank.

What would such a bank look like and how could it benefit the country and the environment?

How green banks benefit state and local economies Capital and credit are the two key financial tools of business. Credit shows up on both sides of a business transaction -- on the side of the business and on the side of its customers. For example, a solar energy contractor needs some form of trade credit from suppliers; customers usually need some form of financing to purchase solar systems. Thus financing significantly impacts both parties. Energy dollars (electricity bills and transportation fuels) normally leave a community and are thus unavailable for recirculation within the community. Money that stays within a community tends to have a multiplier effect through repeated use. By funding local renewable energy businesses, green banks help to provide local jobs and reduce outflow of energy dollars outside the community. The more money such green banks pump into the local economy, the healthier the community. So what determines how much money a green bank can lend into the local economy and what can we do to increase that flow? Green bank lending limits and how to increase them Two key components determine how much banks may lend - capital and deposits, with deposits (checking and savings) influencing the lion's share. Simplistically put, for every dollar on deposit, banks can generate up to 10 times that amount in loans. Since deposits are king, increasing deposits and keeping them with the bank is the secret sauce to increasing a bank's ability to lend. The more deposits we can put in our green banks, the more they can fuel our green economy. So where can the deposits for our green banks come from and how can we make sure they stay in our communities for maximum benefit? When we establish the charter for the non-profit organization that will own a bank, we need to mandate that they provide loans to the community where the deposits originate. The definition of community is flexible, as the funds might come from a state's coffers, a county, a city or even an individual. So where can those funds come from? Vast sums under our control Governments have to deposit their revenues somewhere, and today that is with private banks. So why not have those states, as well as local governments, deposit their funds in a publicly owned green bank, dedicated to serving the exclusive needs of the state and it communities? Managers, not politicians, decide where such deposits are placed; barring specific statutes mandating placement in certain circumstances, public officials like state treasurers are normally free to manage those funds as they see fit. If the state provides the bank's original capital as proposed, the state's deposits could then be redirected to this bank, achieving the goals of a state-owned bank without the legislative battles that approach would precipitate. The public can and should participate. Although governments might not wish to set up their own banks, they can easily deposit their funds in publicly owned green banks. Deposits in such banks would be covered by FDIC and lending practices would be under heavy scrutiny, making these banks just as safe, if not safer than current alternatives. A city depositing its funds with such a green bank would advance the greening of its community, the creation of local jobs and jump-start the improved economic vitality that such financing would provide. Other community groups could likewise deposit their funds with the green bank, including local non-profits, local businesses (especially any receiving a loan from the bank) and residents. Before long, a substantial amount of funds could be deposited for the benefit of a local community and generate considerable local economic stimulus. Now multiply that across all the communities in just one state. And when all states are combined, the cumulative sum would probably far exceed any government generated source of stimulus funds, Yet all this is within our control, one community, one county and one state at a time. Any parties interested in forming a green bank for their state, county or local community, and would like more information, please contact us at: greenbank@foragreenamerica.org.

For a more in-depth article that expands on the concepts presented above, go to this link: Publicly Owned Green Banks (5 parts).

¹ For a better understanding of this concept, see "Borrowing From Peter To Pay Paul: The Wall Street Ponzi Scheme Called Fractional Reserve Banking" by Ellen Brown, http://www.webofdebt.com/articles/ponzi.php, along with a number of other excellent articles on the concept of banking and how it might be changed for our mutual benefit. (click here to return to text)

Michael Sauvante is chairman of The CEED Development Company (TCDC) and the chief architect of the CEED Program. He is the leading voice behind a movement to add some critical amendments to the American Climate and Energy Security Act of 2009 (ACES) currently under review in the Senate. The rationale for those amendments is covered in his recently published article An Energy and Climate Bill for the Rest of Us. Vari MacNeil contributed to this article.