Jul 31, 2023
The Los Angeles Office of the Treasurer has managed a substantial investment pool for years, primarily in U.S. Treasury bonds and multinational corporations.
The Los Angeles Office of the Treasurer has managed a substantial investment pool for years, primarily in U.S. Treasury bonds and multinational corporations. The office's conservative investment approach has led to significant growth, with the city's investment portfolio increasing by nearly $13 billion over two decades. While financial experts highlight the city's successful long-term returns, community advocates argue that these funds should stay within Los Angeles, backing local businesses, housing development, and infrastructure. This debate has spurred the City Council to commission a feasibility study for a public bank.
This move aligns with a growing trend of municipalities considering public banks as the U.S. scales back pandemic-related funding initiatives and regulatory scrutiny on banks' risk management intensifies. The proposed public bank model envisions reinvesting profits from its financing into community-based businesses and projects. However, this approach has garnered criticism from the banking industry, citing concerns about risks, corruption, and competition.
Public Bank LA, the driving force behind this initiative, envisions a wholesale bank catering to community development financial institutions such as local credit unions. The goal is to offer financing for projects these smaller lenders might avoid due to risk. The public bank's potential growth could eventually lead to it providing conventional banking services to the public.
The feasibility study, funded with $460,000, aims to evaluate the viability of a public bank for Los Angeles. Similar institutions exist globally, notably German public banks that have significantly contributed to infrastructure development. In the United States, the Bank of North Dakota serves as the only state-owned bank, supporting local lending for agriculture and infrastructure.
Advocates believe a Los Angeles public bank could support projects like affordable housing and green energy developments, offering flexible financing that traditional banks might not provide. However, critics, including the financial industry, argue that public banks might lack the expertise required for successful long-term investments and could be susceptible to corruption.
The debate echoes previous clashes around the California Public Banking Act, and concerns arise about the potential misuse of funds and the ability to protect deposits. While proponents stress the benefits of boosting local investments, opponents worry that a public bank might divert resources from established local financial institutions.
Ultimately, the discussion over a public bank for Los Angeles reflects broader conversations about balancing long-term financial growth, local investment, and responsible oversight. The outcome of the feasibility study will likely influence the city's financial strategy and its commitment to community development.