Busting the Bankers’ Club: The Case for Public Banking and Democratic Finance

Renowned economist Gerald Epstein discusses the advantages and challenges of public banking as a means to democratize finance and challenge the influence of the wealthy elite.

The current banking and financial system has been accused of perpetuating inequality, consolidating power in the hands of the rich, and undermining democratic institutions. In his groundbreaking book, “Busting the Bankers’ Club: Finance for the Rest of Us,” economist Gerald Epstein argues that a fundamental transformation is needed to restore democracy and promote the common good. One potential solution gaining momentum is the movement for public banking, where banks are owned by the people rather than the wealthy elite. In this exclusive interview, Epstein discusses the advantages and challenges of public banking, shedding light on how it can create a financial system that works for everyone.

Advantages of Public Banking: Democratizing Finance for the Common Good

Epstein begins by explaining the concept of public banking, which extends beyond government-owned banks to include financial institutions with a primary mission focused on social goals rather than profit. These institutions may be purely government-owned or public-private partnerships, but the key is that their mission orientation is dominant. Epstein highlights several advantages of public banking:

1. Addressing Neglected Areas: Private banks often avoid investing in underserved communities, affordable housing, cooperative economics, and environmental sustainability due to perceived risks or lack of profitability. Public banks, driven by a social mission, can make significant progress in these areas.

2. Competition and Alternatives: Public banks provide an alternative to large, speculative banks by offering affordable banking services and reducing dependence on “too big to fail” institutions. By leveraging the financial power of the state and avoiding high returns to shareholders, public banks can provide basic financial services more cheaply.

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3. Stability and Democratic Governance: Public banks, free from pressures to pursue maximum profits and bonuses, engage in less speculative and risky investments, thereby stabilizing financial markets. Additionally, public banks typically have more democratic and representative governance structures, with stakeholder and community representation on their boards.

Challenges and Progress: Overcoming Obstacles to Public Banking

While public banking has gained traction globally, it faces significant challenges, largely due to opposition from private banking institutions and their allies. The American Bankers Association (ABA) routinely opposes legislation to establish public banks, spreading misinformation about their viability and potential risks. Epstein notes that public banking activists also face obstacles such as acquiring initial capital, securing continuous funding, ensuring liquidity, and garnering community support. However, recent progress is evident, with the New Jersey Public Bank Implementation Board submitting a blueprint for a public bank to the governor. Public banking efforts are gaining momentum, but more needs to be done to reduce reliance on Wall Street.

The Role of the Federal Reserve: A National Bank for Economic Development

Epstein argues that the Federal Reserve, as the most powerful public bank in the United States, has the potential to act as a national bank and play a crucial role in economic development, especially in the face of climate change. However, the Fed’s current focus on supporting private financial institutions and markets limits its impact. Epstein suggests broadening the Fed’s mandate to support the transition to a green economy, increase capital for underserved communities, and promote public banking. While opposition from the Bankers’ Club is formidable, Congress has the power to change the Fed’s mandate, but this would require a more progressive political landscape and a restoration of democracy.

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In the quest to transform our financial system and restore democracy, public banking emerges as a promising solution. By democratizing finance and prioritizing social goals over profit, public banks can address neglected areas, provide alternatives to large private banks, promote stability, and enhance democratic governance. However, public banking faces significant challenges, including opposition from private banking institutions and political obstacles. Nonetheless, recent progress and growing momentum indicate that public banking can play a vital role in reshaping our financial landscape and promoting the common good.