California ‘Experiments’ with Postal Banking

(This article first appeared in the November/December 2019 issue of the American Postal Worker magazine) ​

The early 20th century Supreme Court Justice Louis Brandeis coined a phrase when he referred to the states as “laboratories of democracy.” Brandeis noted in his opinion that a state “may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”

California has just started a new experiment in freedom from the big Wall Street banks with the passage of AB-857 into law. The bill, signed into law by Governor Gavin Newsom (D) in September, will allow cities and counties across California to establish public banks. The new law makes way for California to become only the second state in the country – after North Dakota – to establish public banking.

A grassroots organization called The California Public Banking Alliance was the driving force behind AB-857's passage, building on the momentum of a narrowly defeated ballot measure in Los Angeles that would have led to a city-owned and operated bank. The Alliance expanded the ballot measure to cities and counties across the state.

The work to pass public banking brought together city and county councils, labor unions, civil rights organizations and banking reform advocates. AB-857 supporters included the California Labor Federation; the cities of Los Angeles, Long Beach and San Diego; the National American Postal Workers Union; and the California State APWU.

Like the Bank of North Dakota currently does, cities and counties in California can now create public banks that would partner with other financial institutions to invest in community-oriented programs – providing affordable loans and lines of credit to local businesses and nonprofits for local economic and social development programs.

“This new law prioritizes communities and neighborhoods by empowering localities to use public dollars for their own public good: from investing in affordable housing projects and building new schools and parks, to accessible loans for students and businesses,” said State Assemblyman Miguel Santiago (D-53), one of the bill’s principal authors.

“It’s pretty obvious that the Wall Street system of wealth distribution has created an income inequality crisis,” Santiago said in a statement. “Instead of making rich men even richer, our resources should be invested in community development: parks and green spaces, free community college, new schools, smooth roads, and cleaner air.”

While the new law does not have an explicit role for postal banking, it nonetheless marks an important milestone in the broader movement to build a financial system that works for working families. Allowing cities and counties to charter their own public banks would save local communities millions of dollars in fees that go to the big commercial banks – where public funds are currently banked. As public institutions, the directors of the nonprofit city and county banks would be democratically accountable in a way that Wall Street executives are not.

Growth in public banking could also pave the way for postal banking as well. The new California law will establish public banks that finance public projects – essentially a bank for public agencies or other financial institutions – but it doesn’t initially foresee retail banking services that individual consumers might need. The Postal Service is well situated to partner with public banks to meet the needs of household users.

“The passage of this historic law paves the way for public banking organizers across the country,” said APWU President Mark Dimondstein. “We salute those who supported this effort for demonstrating once again that the people of the country have a real appetite for alternatives to Wall Street’s predatory abuses. It’s time now for the Postal Service to get on board, expand its offering of financial services and help build a financial system that works for working people.”

In the days following the passage of the law, the city council of Los Angeles announced plans to begin the establishment of the first public bank there. Other cities and counties are expected to follow in the months to come.