As Chicago contemplates a COVID-19 economic recovery plan, the city cannot afford to think small. For too long, civic and business leaders have relied on corporate philanthropy, tax credits, and market reforms to recover from crises. These tools work only on the margins, which is why they invariably fizzle.
Arresting poverty, inequality and the racial wealth gap requires a genuinely transformational tool: a public bank.
Why do we need a public bank? Banks create money when they lend. This superpower is the cornerstone of economic development. Loans stimulate economic growth, increase property values, and build wealth — and we can harness this power to benefit all communities.
However, as history shows, money creation has primarily benefited white communities as banks engaged in redlining — marking some communities riskier based on race. The passage of the Fair Housing Act outlawed redlining in 1968, but the practice never went away. Banks baked it into credit card issuances, student loans, insurance and subprime mortgages.
A recent analysis by WBEZ and City Bureau found that between 2012 and 2018 banks lent more in Lincoln Park than in all Black communities in Chicago combined. Then this summer, big banks funneled federal Paycheck Protection Program dollars meant for small businesses to their biggest customers. Many minority and Black-owned firms were excluded because they weren’t already customers of the big banks.
This racism impacts people for generations. In 2016, Black families had just one cent, and Hispanic families had just eight cents for every dollar of wealth held by white families.
Giving private banks the sole authority to pick winners and losers makes them as powerful as the government, with scant public accountability.
It is time to realize that private banks will never change. When a scandal breaks — and they do seemingly every month — banks apologize and pledge to do better. They give money to charity. Then after a few news cycles, banks return to their old ways.
We believe public banking offers a better way forward.
Chicago has billions of dollars on deposit in private banks, and these banks have used this money to finance private prisons, immigrant detention centers and corporate polluters. Just in the last four years, as the impact of climate change intensified, big banks invested $2 trillion in fossil fuel companies. We believe public money has a greater responsibility: to invest in the public interest. Depositing public funds in a city-owned bank will give Chicagoans the power to invest in the city’s neighborhoods.
What might those investments be? Here are a few examples.
A public bank could put the city in the driver’s seat as a financier, developer or both to build tens of thousands of affordable housing units. Today, the city relies on tax credits and developer set-asides for affordable housing. These are adequate tools, but they never work on scale.
Nationally, tax-credit deals yield about 100,000 units annually — the need is 7 million. At this pace, it will take 70 years to build the units we needed yesterday! Locally, there is a shortage of 120,000 units. A city-owned bank could close this gap in a decade.
A public bank could finance a publicly-owned broadband provider to close the city’s digital divide. When the coronavirus closed schools, instruction shifted online. But one in five students did not have broadband access at home. In some neighborhoods, the number was as high as 50%. A city-financed internet service provider could offer cheap access to the internet and subsidize the purchase of iPads and laptops.
Critically, a public bank could power a local Green New Deal and retrofit every home for clean energy, replace lead pipes and finance wind and solar infrastructure to generate electricity for Chicago. It could park public money in community banks, credit unions and community development financial institutions to expand small-business lending. The bank could launch a public Venmo for the city’s underbanked and unbanked to reduce reliance on payday lenders and currency exchanges.
Public banks have great potential to guarantee inclusion and equity in Chicago and beyond. This is why nearly two dozen cities and states are working to establish banks. To aid their efforts, U.S. Representatives Rashida Tlaib, D-Michigan, and Alexandria Ocasio-Cortez, D-New York, recently introduced the Public Banking Act. The bill establishes the financial infrastructure for a network of state and local public banks.
Aldermen and state legislators should seize this moment and begin working together to establish a public bank. We cannot return to the pre-pandemic status quo. Now is the time to launch a public bank, and we do not have a moment to waste.
Daniel La Spata and Matt Martin are aldermen of Chicago’s 1st and 47th wards. State Sen. Robert Peters, D-Chicago, is chairman of the Illinois Senate Black caucus. Ameya Pawar is the former alderman of Chicago’s 47th ward and a fellow with the Open Society Foundations and the Economic Security Project.
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