In January, days after Californians were first allowed to buy recreational marijuana in the state, Attorney General Jeff Sessions issued a memo to federal prosecutors instructing them not to shy away from enforcing federal pot laws. “Marijuana is a dangerous drug,” Sessions wrote. “Marijuana activity is a serious crime.”

The memo, which overturned the official stance of Barack Obama’s Department of Justice on the issue, added confusion to an already puzzling situation. Under the Controlled Substances Act, marijuana is an illegal drug at the federal level, with possession and distribution prohibited. But it has been approved in numerous states for medical and recreational use. That creates problems for businesses regulated at the federal level, particularly banks. If financial institutions take deposits from marijuana businesses, they could face federal prosecution for facilitating criminal conduct. Though smaller banks and credit unions were beginning, under Obama, to take deposits more frequently from the dispensaries, growers, distributors, and other ancillary businesses that have sprung up across the United States in recent years to service its almost $10 billion marijuana industry, the Trump administration’s hard-line stance may now give them pause.

For California, this is a serious problem. Without financial services, its marijuana growers and retailers would face difficulties getting small business loans. Some have no choice but to operate solely in cash, paying their taxes with sacks of bills. This also sidelines billions of drug dollars currently just sitting in safes that banks could use to finance loans or mortgages. So in late January, California State Treasurer John Chiang and Attorney General Xavier Becerra commissioned a feasibility study on chartering a state bank to take deposits from pot businesses. That public bank could theoretically guarantee deposits from the pot industry without utilizing any federal financial processes Sessions could target.

But public banking can do more than just warehouse pot dollars. The model is fairly simple: A public bank takes deposits from city and state tax revenues, giving it a capital base of potentially tens of billions of dollars. Then it could leverage those deposits to make loans for local public works projects, small businesses, affordable housing, or student loans. The idea originated in the United States during the Progressive Era, as reformers sought democratic solutions to the problems caused by the rapid industrialization, monopolies, and political corruption of the 1890s through the 1920s. Dormant for almost a century, the concept was resurrected after the Great Recession in 2008—floated as a way to check the Wall Street banks that had plunged the American economy into chaos and to fuel economic development with affordable loans at the local level rather than from Wall Street financiers. But more than anything, public banking is about regaining democratic control. America is the richest country in the world; public banking advocates want to put that wealth to work on behalf of the people who created it.


These idealistic banking models can seem rather fanciful, but governments in other countries use public banks, exploiting the natural resource of constituent tax deposits for the greater good. For example, Germany has a network of almost 400 public savings banks; KfW, the state investment bank, has financed a significant portion of the country’s impressive green energy development. The United States even has an unlikely model, in North Dakota. Established in 1919, at a time when Gilded Age populists and farmers were worried that Eastern banks were cheating them, the Bank of North Dakota has no branches or ATMs and only one depositor: the state.

Outside of North Dakota, most cities in the United States currently fund projects through either the $3.8 trillion municipal bond market or public partnerships with private investors. These financing options are costly: For example, construction of the eastern span of the San Francisco–Oakland Bay Bridge cost $6.3 billion, and paying off the municipal bonds will bring the price tag closer to $13 billion, according to a 2014 report from the California legislature.

Because the BND is not answerable to private shareholders, it can offer lower interest rates than either of those private options—its Infrastructure Loan Fund finances projects at just 2 percent interest. And because the state owns the bank, any interest income goes back into its coffers. Every legislative cycle, the BND transfers its profits to the state’s general fund to cover budget shortfalls, making the effective interest rate closer to zero. Plus, the money stays at home, circulating in the local economy rather than in a Wall Street executive’s pockets or a risky trading scheme.

The BND has earned record profits for 13 straight years, during both the Great Recession and North Dakota’s more recent downturn from a collapse in oil prices. A 2014 report in The Wall Street Journal labeled the BND more profitable than Goldman Sachs. Moreover, because it often partners with local lenders, the BND has supported the most vibrant community bank network in the country, with more branches and higher lending totals per capita than in any other state. No North Dakota bank failed during the financial crisis.

The way the BND leverages public money can be surprising to those who aren’t familiar with the concept. But banks already use deposits as a capital base to raise money for loans worth many times the cash reserve. This juggling act is typically used to create profit; with public banking, it can expand the money supply for local communities. “Banking is a powerful thing,” said David Jette, the legislative director of Public Bank LA, one of more than 40 groups working on the issue at the local level. “We can place that power into good hands and focus on developing a local economy.”


The needs are certainly great. Most private banks in the United States are reluctant to finance projects with perceived risk like affordable housing. Their investors don’t see the return on replacing water pipes. The American Society of Civil Engineers estimates that the United States needs to spend $4.6 trillion to rebuild and maintain the nation’s infrastructure. Donald Trump has promised to do something about it, but via a plan that offers only $200 billion in federal funds over a decade and expects local governments to pick up the rest. That would require stretching scarce local dollars for infrastructure investment. Public banks, by virtually eliminating financing costs, are well-positioned for this task.

Public banking carries appeal for politicians of different constituencies. Conservatives like the cost savings from the financing model. Liberals like the social responsibility aspect, with local needs taking precedent over Wall Street. And public banking offers a way out of a box that bedevils practically every political campaign. “Candidates have to hit a sweet spot, in which they have to promise they are going to spend more on priorities without people paying more taxes,” said Jette of Public Bank LA. “This is fixing a problem that’s been intractable.”

Continued financial scandals and outsize bonuses and salaries on Wall Street have spurred calls for cities to divest from national institutions like Wells Fargo and Bank of America. But community banks and credit unions lack capacity and often face legal hurdles and onerous collateral requirements to handle public funds. A public bank offers an alternative, with deposits serving the local community. And it’s become even more appealing because of the desire to evade the threat of federal marijuana enforcement: Californian cities such as Oakland and Santa Rosa have used that as a way to advance public banking. Now more than 40 cities and states are calling for similar institutions.

Phil Murphy, New Jersey’s Democratic governor and a former Goldman Sachs banker, campaigned on creating a public bank. “This money belongs to the people of New Jersey,” he said in an economic address introducing the concept. “It’s time to bring that money home, so it can build our future, not somebody else’s.” Murphy won, taking an idea on the political fringes into a state capitol for the first time in the modern era. There’s now a bill in the state legislature to charter a state bank of New Jersey.

Some of the most vibrant advocacy is happening at the local level. The Public Banking Institute, founded in 2010, has affiliates nationwide. San Francisco has convened a task force to create a workable blueprint with a rigorous business plan.

PBI held a weekend conference in Denver in March, bringing together candidates and officeholders, climate and homelessness activists, and even former bankers. “We’ve got to have some new alternative,” said Walt McRee, PBI’s chairman emeritus, on a conference call before the Denver event. “The current system of private capital is only more debt, more taxes. It’s a downward spiral that is unsustainable.”

Public banking could reimagine the role of finance as more than just blind profit-seeking. A bank built to serve the public can channel its resources to actual public needs. It can give the American people a defined voice in the direction of their money. Instead of being at the mercy of financiers, they’d be participating in a fundamentally democratic process: Their money would be theirs.