Green Light for City-Owned San Francisco Bank

Guest post by Ellen Brown,

When the Occupiers took an interest in moving San Francisco’s money into a city-owned bank in 2011, it was chiefly on principle, in sympathy with the nationwide Move Your Money campaign.  But recent scandals have transformed the move from a political statement into a matter of protecting the city’s deposits and reducing its debt burden.  The chief roadblock to forming a municipal bank has been the concern that it was not allowed under state law, but a legal opinion  issued by Deputy City Attorney Thomas J. Owen has now overcome that obstacle.

Establishing a city-owned San Francisco Bank is not a new idea. According to City Supervisor John Avalos, speaking at the Public Banking Institute conference in San Rafael in June, it has been on the table for over a decade. Recent interest was spurred by the Occupy movement, which adopted the proposal after Avalos presented it to an enthusiastic group of over 1000 protesters outside the Bank of America building in late 2011. David Weidner, writing in the Wall Street Journal in December of that year, called it “the boldest institutional stroke yet against banks targeted by the Occupy movement.” But Weidner conceded that:

Creating a municipal bank won’t be easy. California law forbids using taxpayer money to make private loans. That would have to be changed. Critics also argue that San Francisco could be putting taxpayer money at risk.

The law in question was California Government Code Section 23007, which prohibits a county from “giv[ing] or loan[ing] its credit to or in aid of any person or corporation.” The section has been interpreted as barring cities and counties from establishing municipal banks. But Deputy City Attorney Thomas J. Owen has now put that issue to rest in a written memorandum dated June 21, 2013, in which he states:

1. A court would likely conclude that Section 23007 does not cover San Francisco because the City is a chartered city and county. Similarly, a court would likely conclude that Article XVI, section 6 of the State Constitution, which limits the power of the State Legislature to give or lend the credit of cities or counties, does not apply to the City. . . . [A] court would likely then determine that neither those laws nor the general limitations on expending City funds for a municipal purpose bar the City from establishing a municipal bank.

2. A court would likely conclude that the City may own stock in a municipal bank and spend City money to support the bank’s operation, if the City appropriated funds for that purpose and the operation of the bank served a legitimate municipal purpose.

A number of other California cities that have explored forming their own banks are also affected by this opinion. As of June 2008, 112 of California’s 478 cities are charter cities, including not only San Francisco but Los Angeles, Richmond, Oakland and Berkeley. A charter city is one governed by its own charter document rather than by local, state or national laws.

Which Is Riskier, a Public Bank or a Wall Street Bank?

That leaves the question whether a publicly-owned bank would put taxpayer money at risk. The Bank of North Dakota, the nation’s only state-owned bank, has posed no risk to depositors or the state’s taxpayers in nearly a century of successful operation. Further, in this latest recession it has helped the state achieve a nationwide low in unemployment (3.2%) and the only budget surplus in the country.

Meanwhile, the recent wave of bank scandals has shifted the focus to whether local governments can afford to risk keeping their funds in Wall Street banks.

In making investment decisions, cities are required by state law to prioritize security, liquidity and yield, in that order. The city of San Francisco moves between $10 billion and $12 billion through 133 bank accounts in roughly 5 million transactions every year; and its deposits are held chiefly at three banks, Bank of America, Wells Fargo and Union Bank. The city pays $2.7 million for banking services, nearly two-thirds of which consist of transaction fees that smaller banks and credit unions would not impose.  But the city cannot use those smaller banks as depositories because the banks cannot afford the collateral necessary to protect deposits above $250,000, the FDIC insurance limit.

San Francisco and other cities and counties are losing more than just transaction fees to Wall Street. Weidner pointed to the $100 billion that the California pension funds lost as a result of Wall Street malfeasance in 2008; the foreclosures that have wrought havoc on communities and tax revenues; and the liar loans that have negatively impacted not only real estate values but the economy, employment and local and state budgets. Added to that, we now have the LIBOR and municipal debt auction riggings and the Cypress bail-in threat.

On July 23, 2013, Sacramento County filed a major lawsuit against Bank of America, JP Morgan Chase and other mega-banks for manipulating LIBOR rates, a fraud that has imposed huge losses on local governments in ill-advised interest-rate swaps. Sacramento is the 15th government agency in California to sue on the LIBOR rigging, which Rolling Stone’s Matt Taibbi calls “the biggest price-fixing scandal ever.” Other counties in the Bay Area that are suing on the LIBOR fraud are Sonoma and San Mateo, and the city of Richmond sued in January.  Last year, Bank of America and other major banks were also caught rigging municipal debt service auctions, for which they had to pay $673 million in restitution.

The question is, do taxpayers want to have their public monies in a bank that has been proven to be defrauding them?

Compounding the risk is the reason Cyprus “bail in” shocker, in which depositor funds were confiscated to recapitalize two bankrupt Cypriot banks. Dodd-Frank now replaces taxpayer-funded bank bailouts with consumer-funded bail-ins, which can force shareholders, bondholders and depositors to contribute to the cost of bank failure. Europe is negotiating rules imposing bail-ins for failed banks, and the FDIC has a U.S. advisory to that effect. Bank of America now commingles its $1 trillion in deposits with over $70 billion in risky derivatives, and has been pegged as one of the next banks likely to fail in a major gambling mishap.

San Francisco and other local governments have far more than $250,000 on deposit, so they are only marginally protected by the FDIC insurance fund. Their protection is as secured creditors with a claim on bank collateral. The problem is that in a bank bankruptcy, state and local governments will fall in line behind the derivative claimants, which are also secured creditors and now have “super-priority” in bankruptcy. In a major derivatives calamity of the sort requiring a $700 billion bailout in September 2008, there is liable to be little collateral left for either the other secured depositors or the FDIC, which has a meager $25 billion in its insurance fund. Normally, the FDIC would be backstopped by the Treasury – meaning the taxpayers – but Dodd-Frank now bars taxpayer bailouts of bank bankruptcies caused by the majority of speculative derivative losses.

The question today is whether cities and counties can afford not to set up their own municipal banks, both to protect their money from confiscation and to take advantage of the very low interest rates and other perks available exclusively to the banking club. A government that owns its own bank can keep the interest and reinvest it locally, resulting in government savings of an estimated 35% to 40% just in interest. Costs can be reduced, and taxes can be cut or services can be increased. Banking and credit can become public utilities, sustaining the local economy rather than mining it for private gain; and banks can again become safe places to store our money.


Ellen Brown is an attorney, president of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt and its 2013 sequel, The Public Bank Solution. Her websites are,, and


This entry was posted in Business / Economics, Politics / World News. Bookmark the permalink.
  • Tonto

    Unfortunately, Ellen Brown doesn’t have a logical brain cell in her head.

    Brown is very good at throwing out a misdirected barrage of disjointed and disconnected colloquial interpretations of events unknown an unrecognizable to most people. And then with the dust filling the air, Brown attempts to draw conclusions we as readers are supposed take as not being pulling out of her ass…

    Sorry, Ellen. But with a paragraph like this thrown into your caldron this week, forget it.

    “In making investment decisions, cities are required by state law to prioritize security, liquidity and yield, in that order. The city of San Francisco moves between $10 billion and $12 billion through 133 bank accounts in roughly 5 million transactions every year; and its deposits are held chiefly at three banks, Bank of America, Wells Fargo and Union Bank. The city pays $2.7 million for banking services, nearly two-thirds of which consist of transaction fees that smaller banks and credit unions would not impose. But the city cannot use those smaller banks as depositories because the banks cannot afford the collateral necessary to protect deposits above $250,000, the FDIC insurance limit.”

    Knowing how political decisions are made, especially political decisions concerning public money, there’s no end to the untold story here that Ellen Brown is intentionally leaving out. There is no doubt a lot of graft that accounts for this waste of taxpayer money. I’ll bet these banks contribute heavily to political candidates. But Ellen Brown’s socialist agenda doesn’t need that to be brought up.

    So, what is Ellen Brown so excited about? This pie-in-the-sky trial balloon public relations banking stunt would create legions of new public employees, were the City of San Francisco to actually lack common sense in its voters and allow such a well conceived political stick-up to transpire. The best way to rob a bank is to start one. So, why not have the city start one, so the politicians can rob it?

    Knowing California the way we all should know California, such a proposal would create thousands of openings for a lot of obscenely over-paid nepotism-driven public employees. Where’s the savings there, Ellen Brown? And what if this bank then is robbed of everything by some disgruntled clerk, or more likely, by some scheming politicians? Who pays for that? I suppose the city could pay as much again for insurance against the possibility that politicians in San Francisco are as crooked as they are in every other city the size of San Francisco. There’s bound to be a great savings there, given the trustworthiness of California’s politicians these days.

    San Francisco incidentally has a population larger than North Dakota, which Ellen and her front man, Carl Herman, keep referring to as an example that proves public banking is the greatest thing since the Maidenform push-up bra of the 1960’s. “Lift and separate!” or, Jane Mansfield, just throw them over your shoulder like a continental soldier!

    Ellen Brown and Carl Herman always leave out the fact that North Dakota is experiencing a huge boom in oil and gas drilling jobs, which is what really accounts for its budget surplus. All of North Dakota resembles a boom town, complete with the corruption that is systemic to every boom town economy. Their state bank is no doubt just a small part of the corruption and graft that typically goes on in a small population state like North Dakota. (I live in Maine. “Maine, the way life should be!” our state slogan, has recently been morphed into the more logical, “Maine, the way life just is.”)

    If Ellen Brown had one ounce of logical ability between her rather large ears, she’d be embarrassed by her endlessly touting herself (rump-up) as some kind of economix genius. As it is, I’ll just have to continue to point out how she should be embarrassed. Get off the soap box, Ellen Brown. You’re are again making a jackass out of yourself.

    • ZackForester

      “I will venture to say that there never was a wiser or better measure, never one better calculated to serve the uses of an increasing country, and never was a measure more steadily pursued or more faithfully executed for forty years together than the loan office in Pennsylvania, formed and administered by the assembly of the province.'” Samuel Leavitt, Our Money Wars, 1894.

      Banking in the US was never meant to be privatized nor was it ever meant to be controlled controlled by a single entity. The Revolutionary War was primarily fought over the control of monetary policy and not taxes as written in the history books. The Currency Act of 1964 forbade the colonies from issuing their own currency as legal tender and caused the colonies to go from a centuries long economic boom to depression within 5 years. Prior to that there was no boom and bust cycle and the colonies enjoyed one of the longest periods of economic expansion in our history. In 40 years from 1723 to 1764, the economy in Pennsylvania alone grew 10 times over. In England, the money in circulation was printed and lent by the private Bank of England, which collected interest on every pound and penny in circulation. Sound familiar? It should. We’re suffering a similar fate right now with the Federal Reserve, which is about as federal as Federal Express.

  • jadan

    When did we lose confidence in our ability to govern ourselves? When did our social contract we call the Constitution expire and leave us all at the mercy of ideological billionaires and transnational corporations? When did the least activity conducted to promote the general welfare come to be reviled as “socialism”?

    Anti-government cynicism has always been part of the American political scene, but it did not gain the upper hand until that colossal idiot, Ronald Reagan, came on stage to inform us that government is not the solution, government is the problem. Reagan never emerged from adolescence before his brain rotted and turned to mush, and the same is true of Ayn Rand. Fortunately they are dead and can do no further harm.

    The fact is if a people cannot decide to involve their government in the management of activities critical to their own welfare, such as banking, then they have no hope. In today’s world, public institutions are easily made transparent and accountable to the people they serve. Government can and does work at the local level so long as people make the effort to involve themselves. Government at the federal level does not work. Our hope as a people lies at the grass roots in local initiatives. At the state and local level people can rediscover the meaning of democracy.

    Ellen Brown knows this very well. She has a very practical message: take back control of your lives when and where you can. The people of San Francisco are a sophisticated group with the self-awareness needed to create a new public institution to serve their collective interests. Californians could also do this at the state level, and maybe they will, but if they do it first on a small scale, this example of self-empowerment at the grass roots will ultimately win the day as that menacing fascist federal edifice comes apart.

    After all, what sane person wants to pay Bank of America 6% interest for credit their own government run local bank could supply for 2% or less? This is not socialism, this is just common sense! The only drawback is the bankers don’t like it. And that’s just normal. Who likes competition? But these banksters know or they strongly suspect that if the people get together and discover what they can do with their own money, Bank of America is out of business.

    The rebirth of the American Dream isn’t going to happen in Washington, DC.

    • Tonto

      “When did we lose confidence in our ability to govern ourselves?”

      This is ideological hogwash. This is a republic. It was never set up to be “governed” by the mob.

      And if the City of San Francisco were (impossibly) to set up a city-run bank, such a move would only consolidate more power over people into the hands of big government.

      “[Ellen Brown] has a very practical message: take back control of your lives when and where you can.”

      Ellen Brown’s message is, print more money and loan it out to ourselves, so no one will ever have to work again. Ellen Brown contends she is going to end poverty by printing money.

      Ellen Brown is a fruitcake economist. Ellen Brown doesn’t understand, credit is the LAST thing this country needs more of. Insolvency and securitization of debt is the problem. It is the problem because this is how the country is being controlled and manipulated.

      Too many people think we have to keep borrowing money, or the economy will collapse! The truth is, the country is about to collapse because there is too much credit and no one is left solvent enough to pay off the creditors.