Gov. Phil Murphy’s dream of establishing a public bank in New Jersey to help counter the excesses of Wall Street is still alive even though it has yet to get beyond the early stages of development.
The governor updated the status of his long dormant public-banking plan on public radio last week, telling listeners he’s “frustrated” that an idea he regularly touted when campaigning for office a few years ago seemingly has remained stuck in neutral.
But Murphy said he is “not giving up” on the public bank — which would allow taxpayers to benefit from the millions of dollars in government funds deposited each year in commercial institutions. He also suggested his administration has been making some progress on it behind the scenes.
“I hope that we’re going to have some ‘beta’ test of some version of this at some point, and I’ll keep you posted,” he told listeners.
The basic premise of a public bank is to leverage the millions of dollars in taxpayer deposits that are typically held in large commercial banks to ensure those funds are used to serve some sort of public-policy mission. Advocates of public banks also say they can provide borrowers with fairer interest rates and other favorable lending terms because there’s no need to charge high fees to fund things like large executive bonuses or to pump up shareholder profits.
North Dakota has the only one
North Dakota currently is the only state that operates a public bank wholly backed by the deposit of government funds. Founded a century ago to help insulate the state’s farmers from predatory out-of-state lenders, the Bank of North Dakota offers state residents, businesses and students low-cost services like checking accounts and loans. It has also been used to advance projects that boost infrastructure and economic development, and has even produced revenue for the state budget’s general fund, according to the bank’s promotional materials; when the bank’s lending operations turn a profit — which happens regularly, according to the promotional materials — money is transferred back to the state budget to help offset taxes.
North Dakota may soon have company thanks to a new law that was enacted in California earlier this month. Under California’s Public Banking Act, municipalities and counties there are now allowed to establish and run institutions that engage in commercial banking businesses. The new law caps the number of such institutions that can open statewide at 10.
A report published by the New Jersey Citizen Action Education Fund last year detailed ways that a public bank could benefit New Jersey taxpayers, including by filling gaps in small-business lending. A public bank could also generate new financing opportunities for worthy affordable-housing and public-infrastructure projects, and boost the availability of low-cost student loans, the report said. The authors recommended financial policies and safeguards that could ensure sound lending practices and guarantee that taxpayer dollars aren’t squandered underwriting faulty loans.
The Citizen Action report followed up on Murphy’s own promotion of the potential of public banking in speeches, town halls and campaign commercials during his run for governor. A former Goldman Sachs executive, Murphy pitched the public bank as a way to help curb the influence of Wall Street and large, out-of-state corporate banks that are solely focused on generating big profits. He also suggested such an institution could offer residents more favorable terms than commercial banks and reduce how much local governments in New Jersey spend annually on banking fees.
Some concerns about the consequences
“This money belongs to the people of New Jersey, it’s time to bring the money home,” Murphy said during a campaign event in 2016.
But since taking office, Murphy’s administration has made little progress advancing the banking initiative as other economic-policy goals, such as increasing the state’s hourly minimum wage and restoring a true millionaires tax, have become higher priorities during his first term. The proposal has also fueled some concern, including fears that it could take business away from the state’s local banking community and create new opportunities for corruption and undue political influence.
Murphy, a Democrat, conceded that the public-banking initiative has been held up by some technical “complications” as he discussed it during last week’s episode of “Ask Governor Murphy” on public radio.
“It’s just been a lot harder to do than I thought from the outside,” he said without offering any more details. (Asked for more information by an NJ Spotlight reporter the following day, the governor’s office declined comment.)
But the governor also made it clear that the idea is not dead. And as a sign of his continued commitment to the banking initiative, Murphy pledged during the radio show that he is “going to die trying” to get a public bank established in New Jersey.
“We’re not giving up,” he said.