Guest blog by Marie McCahery of Bradford
When I’ve attended devolution conferences, I’ve found them interesting but at the same time I’ve been astonished that local public banking is never on the table as an option for achieving financial independence.
Upon extensive study of monetary and banking reform I have become convinced, with many other people, that local public banking is the most achievable way for localities to gain some measure of financial independence, to fund the initiatives they decide they need. I think that devolution to local cities provides a fantastic opportunity for this option to be investigated further as local public banking can allow cities to do so many things independent of funding from London or Brussels. It really needs to be on the table.
But public banking is never talked about in the UK, despite it being 25% of banking worldwide and 40% in successful economies such as Germany. The UK banking sector is dominated by four huge private banks and it’s about time we had a more diverse banking sector like many other countries. Germany, for example, has local, regional and national public banks, all motivated for the public benefit, not profit maximisation. These are major lenders into local SME’s, infrastructure and the green sector.
The local public banks, the Sparkasse, lend over 70% of their loans to the local SME’s (small and medium enterprises, less than 250 employees), unlike the massive, national private banks in the UK, that only lend 8% to the productive sector and only a quarter of that, 2% to SMEs. The Sparkasse are also major investors in local green initiatives and co-operatives. We have many problems in the UK and public banks could be part of the solution to alleviate them, the devolution to the cities offer a great opportunity to investigate the idea of local public banks using the Sparkasse outreach programme, the SBFIC, who have already been doing fantastic work in Ireland.
Local public banks are owned by the local authorities, though not operated by politicians but by public employees proud to work for the public benefit. They can only ever earn salaries as there is no bonus/fees/commission culture in public banks. They offer what Professor Marianna Mazzucato calls “patient, committed” money. Their remit to work for the public benefit means that public banks do not lend into financial speculation which meant that the Sparkasse did not suffer losses in the crash of 2008, and were happy to continue lending to businesses and to even lend more to nurse their businesses through the recession. Institutions worried that they would lose their deposits in the event of a bank failure caused by the incessant financial speculation of private banks might choose to deposit in public banks, where their money is safer, where banking charges are cheaper, and where loans and profits are channelled for the public benefit.
Local public banks are willing to look at business plans from the local authority and lend to it for public housing, green initiatives and other projects whose income will pay to service the loan. Their Interest charges are also cheaper for such loans as they have minimal overheads. Local co-operatives are also much more likely to receive funding from a local public bank that does not want local enterprises to close.
It must be remembered that credit unions do not have a banking license, they are intermediaries between savers and borrowers. The difference with a banking license is that banks can create money from nothing when they issue loans. When someone borrows from a bank, they sign a promise to pay which becomes an asset to the bank. The bank then must create a matching liability which it does by crediting the borrowers account. This money, however, does not come from savers or from the bank’s reserves, but is created by tapping the keyboard. This capacity of banks to create money was explained by the Bank of England here.
So local public banks bring newly-created money into the local economy, supporting local businesses and jobs. It is not inflationary, as the money is matched by new production, unlike the money created by the present private banks that are primarily aimed at the housing and financial sector, creating inflation in these sectors and making asset-holders richer whilst leaving everyone else with debts, thereby increasing inequality. For more information on how banks create money, also look at Positive Money here.
Only 3% of money is created by the government as cash, the rest is created digitally by the private banks and it is time this immense power was used for the benefit of the public. How much longer can we put up with the private banks litany of wrongdoings?
Marie can be contacted on Twitter @MarieMcCahery
or via email@example.com
Public Banking Conference – banking in the public interest
Friends meeting House, Manchester, Sat February 20th 10am – 5pm
If you’d like to know more, I have organised a conference bringing together major thinkers on banking and how it can be reformed to help society including:
Richard Werner, Professor of International Banking at Southampton University, a leading thinker on bank reform, and a leading proponent of local banking
Dr. Thomas Marois, senior development lecturer at SOAS (School of Oriental and African Studies) in London, who has studied the workings and benefits of public banks in developing countries. See this report http://bit.ly/1PNuwnD
Frank van Lerven, of Positive Money, as mentioned above
Noel Kinahan, a leading local public banking campaigner from Ireland, who will outline how the Sparkasse Outreach Program (SBFIC http://bit.ly/1njreBp ) is helping Ireland plan how to introduce local public banking, which is now on the manifesto of three of Ireland’s political parties in the upcoming election.
Duncan McCann of the NEF http://www.neweconomics.org/ talking about financial independence for Scotland
TBC others talking about the possibility of local public banking in the devolving northern cities
Facebook event to share https://www.facebook.com/events/1093984393974560/
Tea and Registration 9-10pm, finish 5pm,
I am also organising a seminar with the main speakers on the preceding Friday (19th Feb) to take place at Manchester University and am trying to get representatives from the northern city councils to use this opportunity to question them. There are also academics interested. Hopefully, they will take this opportunity.
To learn more on public banking in many countries, please listen to my interview with Dr Thomas Marois, on my radio show “Why Don’t Economists? ” https://audioboom.com/boos/4075926-why-don-t-economists-13th-january-2016