Public Banking for New Mexico
A Public Bank Defined
Public Banking Made Easy, an animation that illustrates how public banks can provide towns and states with more resources to apply to their communities’ needs – from the Public Banking Institute
A bank for public funds owned by the State of New Mexico.
A public bank is owned by the people through their representative government: a Tribe, City, County, State or Federal Government. It can receive deposits of public funds (taxes, fees fines and interest earned) from and make loans to the government entity that owns it and other governmental entities.
A public bank for New Mexico can be founded and owned by the State of New Mexico, which holds it in trust for the people of New Mexico. A portion of its profits can be returned to the governing unit that owns it, to be used for public purposes with additional interest revenue retained to grow the bank. There are no “private” stockholders reaping the bank’s profits as stock dividends.
A public bank can pay the State higher interest on its deposits than currently paid by national/global banks, because a public bank doesn’t return profits to individual stockholders or pay exorbitant salaries to high level employees.
A public bank can generate revenue on interest earnings, on investments and loan re-payments, and re-invest those earnings based on state goals with democratic decision-making. Interest on out-of-state investments can be diminished with higher overhead costs accrued by national/global banks. A public bank doesn’t return profits to individual stockholders or pay exorbitant salaries to high-level employees. The revenue returns to the state to fund additional economic development and infrastructure projects, made possible with the increased funds remaining in the state.
A public bank will keep our state’s money right here at home in New Mexico.
Major Infrastructure and Economic Development projects are funded with borrowing on the bond market, allocation of tax revenue, and State reserves – a State Public Bank could provide the most efficient and least expensive funding for projects like these.
A public bank manages the peoples’ money safely and efficiently.
The public bank will be chartered by the State of New Mexico, like other banks, but the public bank’s mission will be to receive, hold and invest substantial deposits from the State of New Mexico. Deposits will include state income from taxes, fees and fines and any interest earned.
Because the proposed public bank will not be set up for private bank accounts as a retail bank, it will not incur the expense of providing retail banking services and products. Thus it is more efficient to manage, with reduced expenses and a small professional banking staff.
A public bank can partner with local community banks, credit unions and community development fund institutions (CDFIs) to guarantee or share in local lending.
This will make it easier for those institutions to make loans that expand our economy, create jobs and invest in projects that enhance the wellbeing of our communities.
A chartered public bank can put its financial resources to work for New Mexico twice. First, it can issue bank credit (loans) for up to 90% of qualifying deposits, thereby using the fractional reserve system to multiply the value of its deposits with the credit it creates through the loans it makes. Second, those loans are held safely in a bank account earning a little interest for the State. The public bank can also leverage loans with credit unions and community banks, which are determined to be too small for them to fund alone.
Governance practices and management that serve the public good
For our public bank to serve the public interest (instead of private investors), AFLEP believes the public must be involved in establishing the bank’s governance to ensure transparency and accountability in how the bank manages and invests the public’s money.
Governance with public oversight will ensure that the mission and purpose of our public bank is carried out faithfully. The governance structure will include a way for the public to periodically review and inform the bank’s mission.
A public bank would be governed by New Mexico Statutes and the New Mexico Administrative Code and operated under the same regulations that apply to all state-chartered banks, subject to regular inspections, reviews and audits.
A governing board will ensure that the investment practices remain true to the public bank’s mission, and that financial management of the bank is sound. Bank policies and quarterly public reporting requirements assure compliance and transparency for how public funds are managed. Those appointed to the board must be residents of New Mexico, have clearly demonstrated personal and professional integrity and impartiality, and be very familiar with the needs of our communities. A portion of board members must have sound financial industry experience.
The public bank would be staffed by banking professionals who are public servants, who will be paid commensurate with their expertise, outside of the state compensation system, and not in the range of super-salaries and bonuses paid in the global banking system.
The management of the public bank would be independent from State elected officials and appointed staff, responsible to the board. There will be a firewall that prevents political involvement or tampering by non-bank officials.
There are several highly successful governance models that could be helpful for the public to review as part of the research for establishing the new public bank’s governance structure. Those include the Bank of North Dakota, the Sparkassen Savings Banks in Germany and our own local credit unions and CDFI’s.
A number of extra-governmental or super-governmental agencies or corporations, in and beyond New Mexico, can also provide models for how a public bank can be responsive to the citizens’ priorities while remaining protected from political tampering.
Where does the money in a public bank come from?
When all the legal steps to establish a public bank have been completed, a Public Bank for New Mexico could be created with a deposit of tax revenue, fines, fees or even funds from one or more of the State’s sovereign investment funds.
As a part of the bank charter application, the bank will describe the kinds of investments /loans it intends to make. Much of the bank’s lending will initially be to the State for public infrastructure or economic development projects. These are low risk loans that benefit the public as a whole, and the interest paid will grow the funds available for new lending.