What Is a Public Bank?
The Public Banking Institute defines a public bank as “a chartered depository bank where public funds are deposited.” A public bank is owned by a governmental unit a county, state, city, or tribe and is tasked with carrying out a public mission which reflects the principles and requirements of the people it serves.” Ellen Brown distinguishes public control of a bank from state-socialism in that the latter entails government control of the means of manufacturing, whereas public banking entails government control of the credit and debit structure that facilitates trade in goods, including that of free markets.
A public bank is a bank or financial institution whose owners are a state, town, or public actors. It is a government-controlled enterprise.The Bank of North Dakota, the Sparkassen-Finanzgruppe in Germany, and several countries’ postal banking systems are examples of current public banking structures.
A public bank is controlled and run in the public interest by a state or city government. The Bank of North Dakota is the country’s only public bank. Public banks may be more equipped to help local and state institutions as well as larger communities, but getting started can be difficult. The recent crises in finance have inspired significant interest in the establishment of public banks.
How Public Banks Work ?
Despite having a different ownership structure than commercial financial institutions, public banks continue to promote the flow of cash through the economy. Rather than depositing cash in a bank for business and collecting fees and fascination, the federal government controls funds in its own private bank. It can then hypothetically lend money to the community at a lower rate of interest.
Public banks are largely suggested to handle deposits as well as additional banking services for local governments and agencies.
Furthermore, these financial institutions may be able to provide:
- Infrastructure financing
- Wholesale financing
- Small business financing
- Other community banks’ liquidity and security
Most state laws and initiatives currently demand the public bank to restrict public services. For example, if they want to take deposits from the general public, they may be obliged to form a partnership with a local bank. Alternatively, they may not be permitted to accept contributions from non-government companies at all. A public bank can provide some of the identical retail banking and lending services as a typical bank, such as checking and savings accounts, loans, and CDs.
Worries about government agencies competing with private firms, on the other hand, may limit all of these services. As an example, a financial institution may just have one office, serve only local inhabitants, or not provide basic services like as credit cards, electronic bill pay, or even debit card services.
The federal government or a government body owns a public bank. Because elected authorities or representatives assist control the bank, the public has a say in the bank’s choices.
Public banks are concerned with the public good and may be required to support the monetary requirements of the neighbourhood, city, or state in which they operate. Because public banks aren’t always concerned with maximising short-term earnings, they may instead prioritise the community’s long-term requirements.
Building a public bank can be challenging because it demands a regulatory framework as well as initial money. Public banks may compete against current local financial institutions, which may be detrimental to the areas they serve.
Public banks can be established to satisfy certain public policy objectives. Due to the drive to maximise shareholder earnings, traditional banks are unable to satisfy these objectives.
History of Public Banks and Bank of North Dakota
Prior to the establishment of price-adjusting markets in the world of ancient times, temples furnished and regulated weights and measures vital to exchange.Mesopotamia’s extended legal structure featured pricing management and fixed rates of interest set by public tradition, including one shekel per mina, which remained steady for a period of one thousand years.
The Bank of North Dakota (BND) is a North Dakota state-owned and controlled financial institution headquartered in Bismarck. The bank is the State of North Dakota operating as the Bank of North Dakota, according to state law. The government and its agencies must deposit their funds with a bank.
The Impartial League, or NPL, revolutionary populists founded the Bank of North Dakota on the principle of “public management of economic infrastructure.”Limited access to credit aggravated farmers’ troubles in the late nineteenth century, contributing to agrarian populist revolution.In reaction to Minneapolis and Chicago’s pricing manipulation and market dominance, the NPL argued for state ownership of mills, wheat elevators, banks, and other farm-related sectors.
The Bank of North Dakota initially battled with legitimacy.Minnesota and the eastern banks worked hard to weaken the BND.Defaults on the the financial institution’s debts accounted for 66% of the total amount due in 1931 and 1932.
Today, the BND is critical to North Dakota’s economic growth. The organization’s mission is to “advance trade, agriculture, and industry” while at the same time “be beneficial to and help with the development of… financial organizations… inside the State.” Half of the loan book is made up of commercial and agrarian loans originated by local financial institutions and partially funded by BND. This enables BND to increase lending capacity in North Dakota’s local banking business while decreasing the involvement of outside the state banks in the state’s financial system.BND also provides catastrophe and farm relief, as well as funding for public facilities schools, and loans for students. Annually, interest payments are returned to the government in the form of payouts for dividends.
List of Public Banks in India
- Bank of Baroda
- Canara Bank
- Indian Bank
- Union Bank of India
- State Bank of India
- UCO Bank
- Punjab and Sind Bank
- Axis Bank
- Allahabad Bank
- Corporation Bank
- Dena Bank
- Oriental Bank of Commerce
Challenges of public banks
The operation of nationalised banks presents numerous obstacles. Some of the difficulties are outlined below.
- Rural branches suffer financial losses. Nationalised banks must open operations in rural as well as urban locations in the public interest. The expansion rate of these financial institutions is good in densely populated urban regions. However, banks must face losses in many rural communities.
- A significant amount is past due. In order to assist farmers and other underserved sectors, the government often waives their loans. This frequently results in a large amount owed to public sector banks.
- Private bank advancement. People are drawn to several banks in the private sector with excellent facilities and customer service.
- The traditional system. Many banks in the public sector adhere to traditional banking practices, making them less appealing to the young, tech-savvy population.
- Assets that are not performing. Public sector banks’ profitability is impacted by low growth in assets and substantial loan write-offs.