California’s Public Banking Act, AB 857, which took effect on January 1, 2020, requires that municipalities complete a “viability study” as a first step toward applying for a public bank charter. Public Bank East Bay (PBEB)— a joint venture of the East Bay cities of Oakland, Berkeley, and Richmond, and the county of Alameda — is the first California public banking group to complete this step. Authored by Tom Sgouros, the PBEB Viability Study, which has had the benefit of extensive leadership and input by the public and by experts in the field of public banking, is a very well done and promising model for other applicants.
The study states:
“This Study demonstrates that the East Bay region of Northern California can be the home of a stable, productive, and transparent public bank — the Public Bank East Bay — which can help its region address essential structural problems.”
The study proposes to begin the chartering process by forming a “mutual bank.” Unlike other bank charters that require a permanent financial commitment to capitalize the bank, a mutual bank’s capital comes from agreed-upon time-pledged deposits — an advantage with governments that initially may be reluctant to make a permanent financial commitment of public funds. The Public Bank East Bay Viability Study reports that the mutual bank will achieve fiscal stability within the first three years of opening and become profitable in year four, by providing loan support to underserved sectors of the local economy and infrastructure needs.
The mutual bank will partner with local Community Development Financial Institutions (CDFIs) and local banks to increase small business lending and provide nimble capital to non-profit affordable housing developers. It will expand its lending portfolio to include such works as the rehabilitation of existing buildings to ease strain on the environment, completion of needed electrification and renewable energy projects, and the financing of small projects of the member governments.
The study continues:
“Through careful management of these programs, the PBEB can deliver benefits worth many times the initial investment, and provide a vibrant institution that is a vital part of the East Bay economy for decades to come.”