they hold the government over a barrel
August 14, 2018 6:33 AM   Subscribe

 
On the one hand, this does sound like an attractive alternative to commercial banking.

On the other hand - when the article said that such a bank would be "directly accountable to elected officials and civil servants", I thought about the integrity of some of our current elected officials and my blood actually ran cold.
posted by EmpressCallipygos at 6:46 AM on August 14 [10 favorites]


Or maybe conceptualize it as serving its shareholders and the shareholders are the people in the city it serves
posted by The Whelk at 6:53 AM on August 14 [8 favorites]


Why not bolster Credit Unions? They're already likely in your city and have an interest in serving the local community they are working in.
posted by arcticseal at 7:20 AM on August 14 [18 favorites]


Credit unions cannot be held publicslly accountable and lack the size and scale to deal with the issue, which why I support making Public banking a part of (or the investment wing of) a Postal bank. (That said rolling some good credit unions into a public bank isn’t a bad idea)

Related The Predatory Bank/The Public Bank
posted by The Whelk at 7:25 AM on August 14 [8 favorites]


On the one hand, this does sound like an attractive alternative to commercial banking.

When I got pissed at Wells Fargo several years ago (before their criminal behavior came to light) I took my business to a locally owned bank, one that touted how long they had avoided being merged into big, impersonal banks. A little less convenient than the large national banks but some nice perks and personal service. Of course a couple of years ago they were taken over by a larger regional bank and they now have all of the drawbacks of a small bank (limited free ATMs, sub-par online services with limited customer service hours, etc.) with all of the crappy service of a large bank (closing branches, adopting a $6.00 fee for cashing checks for non-customers, and so on). It is a pain to change banks nowadays, what with online bill paying, direct deposit, and all that to move, but I am about ready to. The only problem is I can't find any bank that I am interested in doing business with. If there were a public bank as an option I would look hard at it. Also a USPS bank.
posted by TedW at 7:30 AM on August 14 [4 favorites]


Why not bolster Credit Unions?

I have a savings account at a credit union where I work, and it has become more and more like a big bank every year. They no longer handle loans in-house, for example; they outsource them to national servicing companies. One of the reasons I joined was to take advantage of their competitive interest rates and underwriting flexiblity when I took out a couple of mortgages and car loans with them. They also have added a number of fees for doing things like taking money out of your savings account more than a certain number of times a month. There are only two reasons I still have an account there: they deduct my savings out of my paycheck before I ever see it, which makes it pretty painless, and they offer a free/very inexpensive coin counting service that has long disappeared from other banks and been replaced by the outrageously expensive Coinstar.
posted by TedW at 7:41 AM on August 14 [5 favorites]


And since banks have all merged and taking credit unions with them, unless the market mentality, expanding profits over all mindset is overthrown, any financial organization will eventually become a bubble generating investment Ponzi scheme unless expressly forbidden from doing that under threat.
posted by The Whelk at 7:58 AM on August 14 [8 favorites]


Public Banks & Postal Banks (of which the sample set globally is really large) tend to be ok/good at managing the deposit side of being a bank (with some customer service issues admittedly) while being generally bad at managing the asset side of the business (In a bank deposits are a liability and loans are an asset). They're either unable to underwrite risk and only do things like write mortgages (we basically already have a public mortgage bank in the US that is more sophisticated than most of the rest of the world) and own government securities, or they take risk and suck at it, and since its generally not in anyones interest for a state owned bank to generate high returns, they can't generate the excess capital to get out from under things when they do get in trouble, so the state just perpetually recapitalizes them. Which isn't great. There are exceptions to this rule, like Indonesia where the governement basically allows the state banks to rip off consumers to fund loan growth for infrastructure and SOEs.

Ultimately the lending function of banks is way more important to the economy than deposit taking. It wasn't some neoliberal cabal that has led to the slow decline of postal banks around the world. They're just kind of generally shitty banks, and shitty banks = slow loan growth = slow economic growth. Not to mention they tend to hoover up cheap sticky deposits that are better utilized by banks that actually do a decent job of credit extension.

Which isn't to say there arent bad actors in the privately held bank space.
posted by JPD at 8:01 AM on August 14 [6 favorites]


And since banks have all merged and taking credit unions with them, unless the market mentality, expanding profits over all mindset is overthrown, any financial organization will eventually become a bubble generating investment Ponzi scheme unless expressly forbidden from doing that under threat.

If you consider the main role of a bank is to extend credit using customer deposits, you actually need to be reasonably profitable to generate the capital that allows you to grow your loan book. Ironically the other large critique of banking in the US is the Anat Admanti view which says banks need to have capital levels multiples of today, which implies much higher risk spreads/costs to consumers.
posted by JPD at 8:06 AM on August 14


They also have added a number of fees for doing things like taking money out of your savings account more than a certain number of times a month.

All financial institutions do this with savings accounts because it is a part of Federal law called Regulation D.
posted by Bistle at 8:28 AM on August 14 [9 favorites]


Public Banks & Postal Banks ...[a]re either unable to underwrite risk and only do things like write mortgages ... and own government securities, or they take risk and suck at it

I find that interesting. There are at least two really big sectors of public capital management in Canada, the Canada Pension Plan, funded by employee/employer levies and public union retirement funds. Both have tended to do very well in the past couple of decades, largely avoiding big swings up or down. Some of the pension funds did pretty well out of the auto sector melt-down in 2008, for example.

There are some controversies now about how much better the CPP is under active management compared to a 100% passive regime it used to be under, but it's not doing worse, just not as well as one might have hoped, perhaps.

But public capital management is generally seen as a decent even desirable thing for long-term, low (but not no) risk tolerant funds.
posted by bonehead at 10:11 AM on August 14


CPP (And OMERS and Teachers and CdC and etc.) is famously a big ball of illiquidity risk. None of the book needs to get marked to market, so the smoothness of the returns is a little (or really, a lot) phony. In reality there is nothing wrong with that, but they've basically found a way to arb accounting rules to make people think they are better at taking risk, when really they aren't.

The downside of that happens when public equity market returns are great, but ultimately equity style returns are equity style returns - regardless of how often they are priced.

Large fund like these though are mostly run by private sector folks - either directly by paying them market(ish) rates, or through outsourcing management. That decision is mostly a function of scale.
posted by JPD at 10:34 AM on August 14


Yeah, I realize now that when I hear people talk about postal banking, it’s about deposit-taking and not so much mortgages or other loans. Excuse the naive question, but is there such a thing as securitizing deposits so loan-issuing banks could basically acquire liabilities for a small fee and postal bank could make a modest interest rate on the securities they issue, leaving the loans to other institutions?
posted by mosst at 10:40 AM on August 14 [1 favorite]


I realize that that isn’t the entire problem that public banking aims to address - just what I’ve heard about “postal banking” in particular (and the biggest talking point from people like Ocasio-Cortez about public banks.)
posted by mosst at 10:44 AM on August 14


sort of. But you create another set of skewed incentives. A big cause of the early 80's Penn Square/O&G driven banking crisis was brokered deposits (banks paying other banks for their excess deposits) and correspondent lending (banks who could generate more loans than they could fund selling them onto banks with excess deposits)

In the first case, the bank borrowing the funds is by definition less safe (because the lender of deposits can decide to stop funding if they get nervous, and the asset side of a bank by definition is less liquid than the liability side,) and the in the second case you tend to get large amounts of adverse selection (i.e. I will tend to sell off my bad loans). You do have things in the capital markets that will buy loans, but they are unlikely to want to buy loans off of a poor underwriter.
posted by JPD at 10:50 AM on August 14


CPP ... is famously a big ball of illiquidity risk.

For something like a really big fund, I'm not sure why this is a terrible idea, unless a major goal is full transparency. Holding private equity would seem to be on the face of it a bad strategy. I gather you're saying that the danger is that this can be hiding losses and underperformers for these funds. On the other hand, why should public equity funds have to play by different rules than the private investment forms?

Large fund like these though are mostly run by private sector folks - either directly by paying them market(ish) rates, or through outsourcing management.

This is a direction the CPP has been going too, at least partially, again to some criticism.
posted by bonehead at 11:17 AM on August 14 [1 favorite]


You do have things in the capital markets that will buy loans, but they are unlikely to want to buy loans off of a poor underwriter.

2001-2007 would like to have a chat with you.

Honestly, it's hard to imagine how a postal bank could do worse than the dozens of small mortgage lenders who were correspondent lenders or agencies for, e.g., Countrywide.
posted by praemunire at 11:20 AM on August 14 [2 favorites]


Japan Post is also a bank and it works very well. Starting that in the U.S. would bring the Postal Service out of the red, among other things.
posted by zardoz at 11:23 AM on August 14 [1 favorite]


For something like a really big fund, I'm not sure why this is a terrible idea

It's fine up til the moment you actually need that money. Even big universities, operating along similar lines, found themselves drastically cutting back/postponing spending in the late 2000s.

On the other hand, why should public equity funds have to play by different rules than the private investment forms?

Because you all own them? Henry Kravis doesn't have to answer to me, but I don't put any money directly in his pocket.
posted by praemunire at 11:24 AM on August 14


Japan Post Bank is a 3% ROE/20bps ROA bank. They basically invest all of their deposits in JGBs and other foreign securities.

Honestly, it's hard to imagine how a postal bank could do worse than the dozens of small mortgage lenders who were correspondent lenders or agencies for, e.g., Countrywide.

Sure, just a lot bigger.
posted by JPD at 11:42 AM on August 14


Ultimately the lending function of banks is way more important to the economy than deposit taking.

This might be a bit of an odd question, but what about this is relevant/beneficial for people for whom the benefits of public banking seem relevant? Like, I get the general handwavy "on an infinite economic plane, what benefits the economy benefits me", but "Providing these services to people in a way which doesn't gouge them wouldn't be profitable enough" doesn't exactly have me rising to a vigorous defense of capital here.

I mean, alternately I wouldn't be against "Banks are required to offer free accounts without fees, maximum interest rate caps, interest-free payday lending, etc." and then private banks can compete on the same terms, but I'm sure that wouldn't be popular for people seeking to profit from the exchange either.
posted by CrystalDave at 12:17 PM on August 14 [1 favorite]


public banking is also a part of munipicalism, cities use public banks to get better rates on bonds to build infrastructure which then pays for itself and adds value to the city.
posted by The Whelk at 12:43 PM on August 14 [2 favorites]


Muni Bonds are already cheaper than a state-run bank would be. We don't as a rule use banks to fund municipal infrastructure in the US because capital markets are cheaper. We also offer up a pretty large tax subsidy for munis.
posted by JPD at 1:45 PM on August 14


Sure, just a lot bigger.

The collective scale was pretty damn impressive.
posted by praemunire at 2:30 PM on August 14


In the US, the tradition is to use bonds in place of public banking, for the most part. Municipalities sell bonds and use the funds for infrastructure projects/etc, and periodically pay out interest to bond owners (and that interest is actually tax shielded for the owners, too). It's similar all the way up the scale to federal treasury bonds. In fact, the bulk of my own liquid savings are in federal I-bonds, not in a savings account (although I also do keep a healthy savings account just in case I need fast access to an amount of money that I would rather not have sitting in checking) -- I wanted to invest in the government/people rather than in a corporation, the interest rate is pegged to inflation so my emergency fund won't shrivel up over time, and the interest is generally higher than anything but a very good and fairly long-term CD. I mean, I'm completely a proponent of people being able to invest in their own communities/governments, I do it myself. (Although financing with bonds isn't necessarily limited to the government, either -- corporate bonds are a thing, too).

If the postal service had a bank, I would definitely put my checking account there -- not least because there are postal service branches everywhere in the country, whereas most banks are still pretty localized. And mostly because I'm patriotic and would want to support public options. But in practice, even without a postal bank, I already have my "savings account" with the government for the most part, via bonds. And my debt is/was/will be mostly public anyway, too, seeing as I had federal student loans and am hoping to get an FHA loan for a house sometime in the future. (My only other debts are for my car and phone, which were both financed through the dealer/manufacturer at 0%, and my credit cards. I doubt that the government would be interested in either of the durable good or the credit card markets even with public banking, although maybe?!). My retirement is my only other big hunk of change, and that's either invested in the stock market or already public (via social security), too.

While I would think that a public bank would be a good thing, especially for the unbanked or people without access to banking options, I also think it'd be by and large redundant in most cases and is just not a particularly salient issue. I'm not against it, but we have other public systems in place to do virtually everything a state bank would do for people aside from offering checking accounts, so I'm not really seeing the point?
posted by rue72 at 8:01 PM on August 14


Unbanked people have to rely on cash checking services, pay day loans, or ATMs (with fees!) from pay cards, anything that cuts out that part of the economy is good to me.
posted by The Whelk at 8:04 PM on August 14 [2 favorites]


Although most people who are unbanked are that way because of distrust of institutions, terrible credit scores, or lack of ID. A postal bank could maybe pick up the people who are unbanked due to poor credit, but likely not the other two.
posted by rue72 at 8:17 PM on August 14


A postal bank with a mandate to provide basic consumer banking services to everyone, there.

bad credit shouldn't mean you can;t cash your paycheck or store money. Also many immigrant communities are unbanked cause for language and fear of prosecution reasons
posted by The Whelk at 9:25 PM on August 14 [3 favorites]


> Also many immigrant communities are unbanked cause for language and fear of prosecution reasons

And you think a postal bank run by the Trump administration would somehow elicit this community's trust?
posted by pwnguin at 12:04 AM on August 15


people seem to like the post office, and administrations come and go
posted by The Whelk at 12:06 AM on August 15 [1 favorite]


( me talking about public and postal banking and yeah a third of Americans are un or under-banked)
posted by The Whelk at 12:14 AM on August 15 [1 favorite]


(I'm pretty sure you could rocket to the top of an election if you just campaigned on estimating overdraft fees)
posted by The Whelk at 12:38 AM on August 15 [1 favorite]


don't forget the US already has a public bank -- the federal reserve! there is no reason why its real-time gross settlement services couldn't be extended to the public at large -- fedwire for all! -- and, for that matter, the fed's lender-of-last-resort function, too; indeed, it is written in its 'full employment' mandate :P

I already have my "savings account" with the government for the most part, via bonds.

plus, the infrastructure is already there with TreasuryDirect and, as many have already noted, USPS could take it the rest of the way :D
posted by kliuless at 3:56 AM on August 15 [3 favorites]


LA Public Bank is on the ballot!
posted by The Whelk at 2:47 PM on August 19 [2 favorites]


The case for a Public Bank “There are nearly twice as many payday lenders as there are McDonald’s locations in the United States.”
posted by The Whelk at 8:20 AM on August 22 [2 favorites]


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