Presented by:

To:Date:

Scott Baker, NY State Coordinator, Public Banking Institute SSBAKER305@YAHOO.COMSYMPOSIUM ON PUBLIC BANKINGDecember 14, 2014

“We don’t have the money!”

An all too familiar refrain.

Options have been limited to: • Cut spending • Raise taxes • Sell off public assets

This argument is getting old!

Federal Option is off the table.

Wall Street Journal, January 8, 2011: “We have no expectation or intention to get

involved in state and local finance,” Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later,

“should not expect loans from the Fed.“

In January 2009, President Obama said the Fed might bail out hard-hit state and municipal governments. But the Fed says they are on their own.

Federal Option is off the table

NO RESCUE FOR YOU!

$191B would Rescue all the states…$16T has gone to the banks - 2012 audit of the Federal Reserve

40% of the cost of public projects goes to interest.

Rent in Public HousingCost of interest on capital

77%

Drinking WaterCost of interest on

capital 38%

Garbage Collection FeesCost of interest on capital 12%

From Margrit Kennedy, http://www.monneta.org/upload/pdf/Pres_MK_CompC.pdf

For example . . .

Bay Bridge retrofit: principal, $6 billion;interest, $6 billion.

Bullet train: principal, $10 billion; interest,

$9.5 billion

$92 billion principal + $72 billion interest = $164 billion – nearly double.

Without interest, California could be $72 billion richer.

General Obligation, Revenue, & other bonds, 2013

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

interest

principal

New liquidity rules could cause interest rates to soar.

State and municipal bonds excluded from “high quality liquid assets.”

Compare Greece . . .

“We don’t have the money!”

Solutions have been limited to: • Cutting spending • Raising taxes • Borrowing money • Selling off public assets

No federal rescue.

But now, there’s a new option:• Invest in our own citizens

The public can own its own bank!

Banks literally make money.As the Bank of England

recently put it . . .“Banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits … Commercial banks create money, in the form of bank deposits, by making new loans.”

‘Money creation in the modern economy’, Quarterly Bulletin, 2014 Q1, Bank of England.

Community banks

Dividends

(Interest)

& Local Needs

A typical Systemically Important Financial Institution (SIFI) like JP Morgan has just a 31% Loan to Asset ratio – less than ½ of ND’s community banks. SIFIs don’t make most of their money by making loans!

The States with the Most Community Banks Generally have the fewest Foreclosures…and Vice Versa

Foreclosure Rates for the U.S.January 2014U.S.: 1 in every 1058

Worst 5 States: Florida: 1 in every 346Nevada: 1 in every 533Maryland: 1 in every 543Il l inois: 1 in every 603New Jersey: 1 in every 619

Best 5 States:North Dakota: 1 in 106,489Vermont: 1 in 26,854Mississippi: 1 in 13,851Nebraska: 1 in 12,654Montana: 1 in 10,698

Small Banks are Disappearing

The Big Banks get Bigger…but do not increase their Percentage of Loans to the Community

Small Banks’ Share of Assets Continues to Decline

The largest 25 domestically chartered banks in the country control about two-thirds of all the assets held by domestically chartered banks.

There were 2,118 U.S. banks with less than $100 million of assets at Sept. 30, 2013, down from more than 3,000 at the end of 2008 - FDIC

"Fifteen years ago, the assets of the six largest banks in this country totaled 17 percent of GDP…The assets of the six largest banks in the United States today total 63 percent of GDP.” Senator Sherrod Brown on Sunday, April 25th, 2010 in an interview on ABC’s "This Week.”

And what do these Big Banks do with the Bulk of their Assets?

Protecting state revenues: Dodd-Frank has replaced bailouts

with “bail-ins.”

Even "secured" deposits are at risk.

The biggest banks are now even bigger than ever.

Are they still Too Big To Fail…or will they actually Fail next time?

The operations of the TBTF banks have been compared to a Casino, but this is unfair…to Casinos! In a Casino, you have consistent rules, and if you go bust, you don’t get bailed out, you get thrown out.

New option: Create a state-owned bank

North Dakota owns its own bank – and therefore it creates its own credit.

As a result, North Dakota’s options are to: • Expand public services • Lower taxes • Increase their bank’s capital, to make even more credit available to the people of North Dakota

No need for a federal rescue.

The North Dakota experience:• State-owned bank established 1919• State budget surpluses 2008-2009• Lowest unemployment in U.S. • Lowest foreclosure rate• The most local banks per capita• No bank failures in over 20 years* • Bank funds economic growth, from Main Street to high tech to oil production * Proper risk analysis should include more than that for the Public Bank itself.  North Dakota has had no bank failures in over 20 years, while there were 517 bank failures through the end of Sept, 2013 nationwide since 2000, says the cash-strapped FDIC, which has to pick up the pieces.

Profit the People

• The Bank of North Dakota (BND) earns 20+% annual

return on equity by investing within the state.

• BND’s profits ($300M over 10 years) go to the state treasury, reducing tax burdens while supporting public services.

Why are our tax dollars supporting Wall Street?

Why not invest in-state? For education? Higher education? Renewable energy? Tech startups? Infrastructure?

Minimal operating costs

No bonuses, fees, commissions

No high-paid CEOs

No need for buildings, branches, tellers

No need to advertise

Rating and Staffing: Learning from the Bank of North Dakota

Standard & Poor's (S&P) maintained Bank of North Dakota's (BND) credit ratings in its latest review of the Bank released July 23, 2013. Its long-term issuer credit rating remained "AA-" and its short-term issuer credit rating to "A-1+”

What about “key man” risk? What is the risk of key executives leaving and what does that portend for the safety of the bank? Maybe this is an over-rated fear. While Jamie Dimon makes millions running JP Morgan Chase, the president of the Bank of North Dakota – a Civil Servant - earns about $300 thousand a year. Which is the safer, better-run bank? JP Morgan recently paid over $20 bil l ion in fines for multiple Civil violations (not criminal…so far). The BND has never been found guilty of securities or bank fraud.

What are we paying for?

Possible Funding Sources

5) New Certificates of Deposit sold to the Treasurer and other “outside” investors

6) Banker’s acceptances

7) Repo-like operations that would be conducted with the City/State Treasurer to insure adequate provision of short-term liquidity.

A public bank could funded through a variety of sources and vehicles, including:

Source: http://www.seattlepublicbankcoalition.org/public-bank-solutions

1) City’s/State’s equity investment, funded through a one-time appropriation from the General Fund or transfers of assets from the municipality’s existing investment pool

2) Equity investments in non-voting shares sold to local governments and pension funds

3) Transfer of City’s/State’s deposits and cash accounts currently held in large commercial banking institutions

4) The issue of debt (short-term and medium-term notes) purchased using funds under management by the City/State Treasurer

What are Our Assets Right Now?Check the Comprehensive Annual Financial Reports…

$181 bil l ion in NY State Fiduciary Net Position (March 31, 2014, p. 44)*

$192 Bil l ion in NY City Fiduciary Net Position (June 30, 2014, p. 52)*

~$135m in Orange County total Net Gov’t Fund balances (Dec. 31, 2013)*

There are 10s of bil l ions in other NY liquid funds too

* Does not include fixed capital

What if 10% of these liquid funds were reallocated to a Public Bank?**

OK, these assets are not quite a Money Tree, but they are money that can be loaned into the community, often with higher expectations of return than investments on Wall Street. Remember: it is not under-funding that hurts pension fund returns, it is under-performance and volatility.

** By comparison, the Bank of North Dakota has $6.9B in assets (2014 FS)

Other Municipalities are Investigating Alternate Investment strategies

20 bills in 15 States* considering some form of State Banking Legislation – and many municipalities are too. Many of these proposals look to fund a Public Bank with State and city funds.

• By law, all taxes from North Dakota and the Chickasaw Indian Nation in Oklahoma, go first to these regions’ Public Banks.

• Philadelphia, PA & Santa Fe, NM are considering Public Banks.

Exist ing Public Banks in Green:North Dakota: Bank of North DakotaOklahoma: Chickasaw-owned Bank2 of Oklahoma City.

Is it a better local fiscal solution to reallocate some existing funds into a Public Bank?

* http://www.nytimes.com/roomfordebate/2013/10/01/should-states-operate-public-banks/many-states-see-the-potential-of-public-banking - citing the National Conference of State Legislatures (NCSL), last updated Jan 16, 2013

Free up Funds

• Banks have unlimited low-interest credit lines with the Fed

• States and municipal governments have no credit line with the Fed

So they must create large “rainy day funds”—public money that sits, earning little interest.

Level the Playing Field

Federal law and the banking system give banks huge advantages and place states at a financial disadvantage.

•Banks borrow at rates as low as 0.2% (overnight Fed funds rate) to 1.27% (6-month CD)

•States borrow at much higher rates Our state is paying too much for credit.

•Banks face new regulatory & compliance issues with Dodd-Frank. A State Public Bank could help community banks comply.

Control Rising Credit Costs

• States are now hit with lower credit ratings, making borrowing even more expensive

• A year ago, California was rated BBB, barely higher than bankrupt Greece

What is OUR state’s credit rating? New York’s rating is AA+ to AA– (2013)

Urgent Need: Affordable Credit

What about municipal governments? Don’t they borrow by issuing bonds?

Yes, at “market rates”— but these rates are being driven up, increasing the cost of money.

The issue is not just available credit, but affordable credit.

Banking crises are making public banks more popular.

Safer for depositors.

Countercyclical lending allows sustained growth.

Less corrupt, more efficient, more profitable.

What Can Be Done?

Recap: Solution Choices

• Raise taxes

• Cut services

• Borrow Money

• Sell assets

• Invest in our own citizens by creating a public bank

There are no other choices.

Will we continue having our tax payments sent to Wall Street banks?

Next Steps

Refine and pass a resolution: “Return to prosperity by forming a state-owned bank.”

Tell your state representative that keeping tax revenues in our state is vital—an urgent need.

Find “natural allies” to speak with one voice for public banking in the public interest.

Natural Allies

• Community leaders whose budgets are being gutted by the state

• Enlightened legislators

• Enlightened Media & Reporters

• Public employees and unions faced with state and city budget cuts: teachers, firefighters, construction workers, etc.

• Community bankers wanting to originate loans

• Unemployed and under-employed people

• Small business owners burdened by high credit card APRs to pay for inventory

• Activist groups like New York Public Banking Group; Democratic Alliance; Orange County Peace and Justice; Orange County Public Banking Group; Unitarian Universalist Congregation at Rock Tavern; Westchester People’s Action Coalition (WESPAC); The Pennsylvania Project

Research, Approach, Petition (RAP) R - Join online groups:https://groups.google.com/forum/#!forum/public-banking (219 members) https://groups.google.com/forum/?hl=en#!forum/pbivolunteers (141 members)https://www.facebook.com/groups/publicbanking/ (236 members)

R - Download this slideshow: http://www.slideshare.net/ScottOnTheSpot/return-to-prosperity-for-goshen and http://www.slideshare.net/ScottOnTheSpot/return-to-prosperity-goshen

R - Begin a study of benefits of a Public Bank in your community, city, state, compare funding alternatives and current investments (will require experts!).

A - Hold a Press Conference or public event: https://vimeo.com/68244964

A - Cultivate the Press: “What North Dakota’s Public Bank Does for Small Businesses” http://boss.blogs.nytimes.com/2014/03/13/what-north-dokotas-public-bank-does-for-small-businesses/

P - Sign onto the petition to support a State Public Bank – Assembly bill A01696 / Senate bill S07416 - and gather more signatures: http://www.change.org/petitions/support-a-public-state-bank-for-new-york-state

A thousand signatures hand-delivered in each district would make a big difference!

P - Petition your Assembly Member, City Council member, State Senator, to support Public Banking. 10 co-sponsors already support the Assembly Sandy Galef bill, 2 co-sponsors for the Senate James Sanders bill. Get them to sign the Resolution in favor of the bill in the Files section of this Facebook page: https://www.facebook.com/groups/publicbanking/

Approach Members of the Banking Committee to Co-Sponsor the Galef Bill: A01696

New York State Assembly Banking Committee : http://assembly.state.ny.us/comm/?sec=mem&id=4

Chair: Annette Robinson Members: Peter Abbate; Jr. Joseph Borelli; Karim Camara; Brian

Curran; Patricia Fahy; Andrew Garbarino; Mark Gjonaj; Michael Kearns; Micah Kellner; William Magee; Nicole Malliotakis; Michael Miller Walter Mosley; N. Nick Perry; Andrew Raia; Robert Rodriguez; Gabriela Rosa; Sean Ryan; William Scarborough; Luis Sepúlveda; Aravella Simotas; Dan Stec; Claudia Tenney; Raymond Walter; Harvey Weisenberg; David Weprin

All Co-Sponsors: O'Donnell; Steck; Rosenthal; Mosley; Skartados; Quart; Buchwald; Gottfried; Jacobs; Mayer

Approached in Red Agreed to Co-Sponsor in Green