ICBA Policy Resolution: State-Owned Or Public “Partnership” Banks


  • ICBA opposes the formation of any new public banks or other types of public retail financial service providers whether they are owned by states, municipalities, the United States Postal Service, or any other federal or quasi-federal instrumentality.
  • Such banks would directly compete with community banks, diverting deposits from local communities.
  • Public banks would create undue taxpayer risk.


In recent years, a number of states and localities around the country have considered proposals to create public banks to operate in competition with the thousands of existing private, for-profit, taxpaying banks that serve our communities. Recently, the California State Legislature approved the Public Banking Act, which will allow city and county governments to create, or sponsor, public banks. This law was in response to the failure of a 2018 ballot measure in which voters in Los Angeles rejected an initiative that would have allowed for the creation of a city-owned bank.

No Public Need to Establish a State-Owned Bank. Today’s financial services industry meets the banking needs of both consumers and businesses. In particular, community banks provide 60 percent of all small business loans under $1 million, as well as customized mortgage and consumer loans suited to the unique characteristics and needs of their customers and local communities. Community banks play a vital role in ensuring economic growth is robust and broad-based, reaching urban, suburban, and rural communities of all sizes and in every region of the country. Community banks compete with large and regional banks, credit unions and nonbank lenders. In this financial services ecosystem, there is no public policy need for a state or publicly owned bank that would directly or indirectly compete with community banks, leveraging a tax exemption and virtually unlimited access to capital. Public banks would most likely compete with community banks for public deposits as well as for business loans and loan participations.

Taxpayer Risk Associated with Publicly Owned Banks. Public banks create undue risks for taxpayers. Their deposits, if they choose to forgo or are not provided access to FDIC deposit insurance, would be backed by the full faith and credit of the state or municipality that chartered them, posing substantial risks to taxpayers. This risk would be heightened because a state-owned bank would be lightly regulated since it would not be supervised by a federal regulator. In contrast, any costs associated with handling community bank failures are paid out of the FDIC’s Deposit Insurance Fund, which is fully funded by the banking industry.

Political Risk. A state-owned bank would be subject to the political whims of a state or local government which would dictate the type of products, services, and loans it would offer or even mandate certain loans through political pressure. This would violate the principle of impartial allocation of credit and sound lending. It would create undue risk ultimately borne by the taxpayer. Moreover, 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 its longevity and survival.

Cannabis Industry Does Not Justify Creation of Public Banks. Some groups have argued that a state-owned bank is needed to service the growing cannabis industry. However, once community banks are legally allowed to service that industry, there will be no need for a state-owned bank to service them. A recent study of the feasibility of establishing a state bank in California to serve the cannabis industry found that such a bank would not be viable because it would be too costly to capitalize and would not return a profit for at least 30 years.[1]

Postal Bank. 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. ICBA agrees with a recent report from a U.S.

Treasury Department Task Force on the Postal Service which concluded that USPS should stay out of the business of banking.

[1] Laura Alix. “Public Bank Isn’t the Answer for California’s Pot Industry: Report.” American Banker. December 28, 2018. https://www.americanbanker.com/news/public-bank-isnt-the-answer-for-californias-marijuana-industry-report.

Staff Contacts: Aaron Stetter and Chris Cole