Public banking is already making headlines in one big city mayoral race slated for next year, and it’s bound to come up in at least one more.

By definition, a public bank is a chartered depository institution owned by one or more government units — state, county, city, territory, tribe or nation — that holds government deposits and leverages those deposits to serve the public good.

Although more common in other parts of the world, only one such public bank currently exists in the United States: the Bank of North Dakota, established in 1919. The Territory of American Samoa established a territorial government-owned bank in 2016, but it primarily serves and holds deposits from people and private businesses (and the latest news is that it’s likely to privatize).

Last week, the Chicago Sun-Times profiled mayoral candidate Ja’Mal Green and his proposal to establish a public bank for the city of Chicago. Green follows in the footsteps of Amara Enyia, who ran for Chicago mayor the last time around, as well as former Chicago Alderman Ameya Pawar who ran for city treasurer. Both Enyia and Pawar ran on platforms centered around public banking.

Meanwhile in Philadelphia, Derek Green (no relation) recently announced his candidacy for mayor, in the process resigning from his seat in city council where he spearheaded the passage of a bill directing city hall to take the first steps toward establishing a public bank. Current Mayor Jim Kenney has so far refused to implement the bill. But the bill passed 15-1, meaning all of Green’s former colleagues on city council who have announced their mayoral bids or are rumored to be in the mix have already voted in favor of a public bank in Philadelphia.

Advocates say public banks can partner with local community lenders to expand access to credit for small business, low-income rental housing or first-time homeownership. Existing solutions to expand credit access are clearly not enough, they argue, given persistent racial disparities in access to capital. It was Derek Green’s rallying cry for his entire tenure in Philadelphia City Council, which kicked off with a hearing on public banking back in 2016.

The Black Economic Council of Massachusetts, a statewide network of Black business owners, made legislation to create a state-owned public bank its top policy priority for the past year, after examining the evidence and existing landscape and determining a public bank at the state level could help expand access to credit its members have long been denied. A May 2021 report from the Boston Foundation detailed $574 million or more in unmet capital needs specifically for Black or Latino-owned businesses across the Bay State.

“A state-owned bank was the idea that had the most relevance to the moment,” said Samuel Gebru, former policy director at the Black Economic Council of Massachusetts, told Next City back in April. “It’s not necessarily the easiest to explain, but it’s the most relevant to the post-COVID moment, looking at economic recovery.”

Critics charge that public banks would be costly to operate, putting taxpayers on the hook to keep them afloat, not to mention the potential for corruption and lending in exchange for campaign contributions. The American Bankers Association calls public banks “redundant” and potentially “dangerous.”

Whether or not any criticisms of public banking have merit, supporters have plenty of questions they’ve had to address to get as far as they have across the country. Aside from Philadelphia, which passed its bill earlier this year, in 2021 or 2022 public banking legislation was under consideration in Oregon, Washington, Massachusetts, New York, New Mexico, Hawaii, Los Angeles, San Francisco and Richmond (California).

The question of corruption is one of the biggest. It came up again and again during hearings and public events hosted by Derek Green and other public bank supporters in Philadelphia — who would make lending decisions at a city-owned bank, and how would they be protected from political interference? The end result of all those discussions was a bill that created a sophisticated, multi-layered governance structure that includes community representatives and experienced banking and community development professionals, as well as the city’s internal ethics board.

The Philadelphia public bank governance structure is far more sophisticated than even the Bank of North Dakota’s, whose staff of over 150 banking professionals work under the oversight of just a three-person board consisting of the governor, the state agriculture commissioner and the state attorney general.

Legal authority is also a key question advocates have had to confront, particularly at the local level. As the standard legal argument goes, local governments can only do what state governments explicitly authorize or delegate to them. Pennsylvania has not given local governments the authority to own banks, so the Philadelphia bill instead authorized the creation of a new quasi-public entity under state law, the Philadelphia Public Financial Authority, which may eventually come to own a public bank.

In 2019, California became the first state to pass legislation explicitly authorizing local governments in that state to charter and own banks — opening the door for public bank efforts in Los Angeles, San Francisco and a multi-government East Bay regional proposal. New York State legislators introduced a similar bill back in the 2020 legislative session, but it stalled then and in each year since.

“One of the reasons people are having trouble building businesses, especially for minorities, is that we don’t have the capital,” said NY State Senator James Sanders, the primary sponsor of the NY state public banking legislation, in a 2019 interview with Next City. “We need ways of building our businesses. This seems to be a way of financing them.”

Another major question has been how public banks will interact with existing banks. In hearings about public bank legislation across the country, banking industry representatives have consistently expressed fears that public banks would compete with them, taking away deposits and perhaps even some key staff from community banks.

Pointing to the century-old Bank of North Dakota as a model, most public bank bills under consideration envision that a new public bank would partner with existing lenders to do the bulk of its lending through what’s known as loan participations.

In a loan participation, one lender originates a loan, then it brings in one or more other lenders behind the scenes to actually supply the borrowed funds, and the participating lenders share the interest earned on the loan. It’s not uncommon for banks anywhere to “sell” participations to other banks. It’s a way to manage risk and clear up space on a bank’s balance sheet to do more loans than it otherwise might. It can sometimes be challenging for small banks to find another bank that’s in the market to purchase a loan participation, especially for smaller loans of $250,000 or less.

But in North Dakota, local community banks and credit unions can originate loans and the Bank of North Dakota is always on stand-by to purchase participations. In 2021, the Bank of North Dakota bought 788 participations in business or agriculture loans across the state, accounting for more than $1.6 billion in borrowed funds. That’s a typical year for the Bank of North Dakota. And, currently, the bank has 2,655 active small business or agriculture loans for $250,000 or less in its portfolio.

A bill to create a state-level public bank in New Mexico stalled last year and again this year. Commercial banks in the state continue to oppose the bill, largely for fear of competition. But credit unions in New Mexico came out in support of the bill after seeing the potential for loan participations to increase credit union lending volumes, especially when it comes to small business lending.

“Once I wrapped my head around it — and once it was clear they’re not taking your customers away, they’re just to help supplement what you already do and be another avenue to help you loan more money out in the community, it made a lot of sense,” said Harold Dixon, then board chair of the Credit Union Association of New Mexico, in an earlier interview with Next City.

Funding is always another key question, and it can understandably be a source of confusion. In Massachusetts, supporters put forth a bill envisioning a $1.6 billion public bank — but it would only cost the state $50 million a year in startup capital over four years. For Massachusetts and other states or cities, the relatively small amount of startup capital could come from COVID-19 economic recovery dollars that are still largely unspent, such as the $10 billion being doled out to states through the State Small Business Credit Initiative.

“I think it’s totally doable for [states] to start [a public bank] using [State Small Business Credit Initiative] funds,” said Toby Rittner, president and CEO of the Council of Development Finance Agencies, in an earlier interview with Next City.

The other $1.4 billion envisioned in the Massachusetts public bank bill represents a chunk of the more than $30 billion in state government dollars currently invested in bonds and other short-term investments that would move into deposits at the new state-owned bank. The state would have essentially the same access to those dollars as it does today, and the state-owned bank would simply become part of the state treasurer’s cash management portfolio.

Across the country, state and local governments hold $4.4 trillion in assets on their balance sheets. Most of that is invested in stocks and bonds, but — excluding the $8.6 billion in state government deposits held at the Bank of North Dakota — commercial banks currently hold around $705 billion in deposits from state and local governments.

Moving those deposits out of the mostly large national banks that currently hold them has long been a goal of public bank supporters, going back to Occupy Wall Street and the 2008-2009 financial crisis, and even further back to environmental justice activists concerned with cities depositing funds in banks that continue to finance the fossil fuel industry. It’s one thing that advocates hope not to model after the Bank of North Dakota, which has helped finance the shale oil extraction industry, under its core mission of supporting economic development throughout the state.

“The existing banking and financial structures we’re operating in don’t always mirror our city’s values,” said former San Francisco Supervisor Malia Cohen, in a 2018 interview with Next City. “For example, we had many people opposing the Dakota Access Pipeline. Many of the banks we bank with support the funding of this pipeline.”