A City of Santa Fe Public Bank is Better than a Revolving Loan Fund

Jan 18, 2015 | News, Public Banking

ABOUT A CITY OF SANTA FE REVOLVING LOAN FUND

  1. The public’s funds not needed in the short term might be loaned to benefit the public good. As the borrower pays back the City they also pay interest. The interest paid over time will increase the loan fund.
  2. A revolving loan fund can partner with other financial institutions to increase the lending capacity in the community.
  3. The funds are managed in-house by the City whose staff decides where the public’s funds will be loaned.
  4. A downside is that the majority of the public’s funds (funds not eligible for lending) probably would remain in a Too Big To Fail Bank (TBTF) and would be at risk for a bail-in (our public funds could be seized to pay for a TBTF bankruptcy).

*TBTF are global banks like Wells Fargo, Bank of America, Chase Morgan Stanley, & Citibank.

ABOUT A CITY OF SANTA FE PUBLIC BANK

  1. When a public bank makes a loan the public’s funds remain safely in the bank.
  2. A public bank uses fractional reserve lending rather than lending its funds directly.
  3. Through fractional reserve lending, the bank makes a loan by extending bank credit.  Bank credit is something like an IOU between banks that is guaranteed by the funds available for lending in the bank. A bank can create loans with bank credit up to 9 times the funds available for lending.
  4. As the loan is repaid, principal AND interest grow the funds available to invest back into the community.
  5. THE CITY CAN BORROW FROM ITS OWN PUBLIC BANK and END THE DEBT CYCLE of borrowing and then paying back the loan plus interest to another financial institution. When the City pays back principal and interest to its own public bank, more funds become available to lend back into the community.
  6. A public bank partners with local financial institutions to further increase access to credit in our community.
  7. A public bank carries out the mission given to it by the public independent of City government. It is managed by highly qualified bank staff who receive only a government salary. There is a high level of public review, accountability and transparency to ensure the mission is being carried out in the public’s best interest.
  8. THE PUBLIC’S FUNDS ARE NOT AT RISK FOR A BAIL-IN because all of the City’s funds are held and invested safely by its own public bank. Its investments are conservative and directed toward long-term gain for the community, not in risky derivatives.
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