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


  • 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 would directly compete with community banks, diverting deposits from local communities. Banks that forgo FDIC insurance would pose risks to taxpayers.


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. 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. Also, a state-owned bank is likely to be less regulated since it would not be supervised by a federal regulator. Moreover, 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 particular loans through political pressure. Recently, voters in Los Angeles rejected a ballot measure that would have put the city one step closer to establishing its own public bank.

No Public Need to Establish a State-Owned Bank

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 growth 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 services 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. 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.

State and Local Budget 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. 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.

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 its longevity and survival.

[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, Mark Scanlan, and Chris Cole