Public Banking


  • ICBA opposes the establishment of all forms of publicly owned banks or financial service providers whether they are owned by states, municipalities, or the United States Postal Service.
  • Such banks or financial services providers would directly compete with community banks, diverting deposits from local communities. Banks that forgo FDIC insurance would pose risks to taxpayers.


No Public Need to Expand Public Banking. Providing 60 percent of all small business loans under $1 million, as well as customized mortgage and consumer loans suited to the unique characteristics of their local communities, community banks are playing a vital role in ensuring the economic recovery is robust and broad-based, reaching communities of all sizes and in every region of the country. With competition from large and regional banks, credit unions and nonbank lenders, today’s financial industry meets the banking needs of both consumers and businesses. There is no public policy need for a state or publicly owned bank that would directly or indirectly compete with community banks.

Risks Associated with Publicly Owned Banks. The deposits of publicly-owned banks that forgo FDIC insurance would be backed by the full faith and credit of the state or municipality, posing substantial risks to taxpayers. If, for instance, large development loans of a state bank without FDIC insurance go into default, the state government may be left with no other option but to bail out the bank at a significant cost to the taxpayers. In contrast, any costs associated with handling community bank failures are paid for out of the FDIC’s Deposit Insurance Fund, which is fully funded by the banking industry. Also, state owned banks are likely to be subject to the political whims of the state and local governments with regard to the type of products, services, and loans that may be offered or even mandated through political pressures.

ICBA adamantly opposes allowing the U.S. Postal Service (USPS) to offer financial products and services, as advocated by the Office of the Inspector General for the U.S. Postal Service. These activities would include loan making, deposit taking, and other services that are fundamental to community banks. The encroachment into these activities by a major federal agency would represent a significant, government-sponsored, competitive threat to the ongoing viability of the nation’s thousands of private- sector, tax-paying community banks that do an excellent job of serving consumers, small businesses and farmers and ranchers across America.

Fiscal Crises Do Not Justify Threat to Functioning Private Market. The interest in publicly-owned banks surged following the financial crisis as many municipalities searched for revenue sources to shore up budget shortfalls. The USPS Inspector General’s proposal was likewise intended to address that agency’s very serious fiscal challenges. Shoring up government budgets and municipal pension funds is not a compelling reason for transferring assets from privately held commercial banks to government controlled public banks operating outside of the free market. In the case of USPS, without focused management attention and experienced financial risk managers, the provision of financial services could exacerbate the agency’s fiscal problems. In addition to the harm done to consumers and community banks, USPS financial services could quickly become a source of staggering losses in need of a taxpayer bailout.

State and Public Banks Will Compete with Bankers’ Banks and Other Community Banks. Since government-controlled banks would, in most instances, offer the same services as bankers’ banks, they would be in direct competition with those banks. However, it would be virtually impossible for a bankers’ bank to compete with a tax-exempt, less regulated publicly-owned bank with unlimited access to capital. Furthermore, these banks will most likely compete with community banks for public deposits as well as for business loans and loan participations.

“Mission Creep” Will Expand the Scope of Any State or Public Bank. History clearly indicates that even public banks founded for narrow, specialized purposes would inevitably expand beyond their original scope. Credit unions and the Farm Credit System have expended well beyond their original limitations and now compete directly with community banks. Once established, a state or public bank would advocate relentlessly for additional powers to assure it longevity and survival.

Staff Contacts: Mark Scanlan, Chris Cole