Public Bank Law Enacted in California

California Governor Gavin Newsom (D) signed into law legislation authorizing local governments to charter public banks.

The bill (AB 857) will take effect in January and permits the chartering of two public banks per year. The maximum number of public banks at any one time will be capped at 10.

According to the bill, a public bank will be organized as either a nonprofit mutual benefit corporation or a nonprofit public benefit corporation. FDIC insurance is required in order to secure a charter. Public banks will be allowed to accept deposits from local agencies but are prohibited from competing with local financial institutions.

Proponents argued that public banks will be able to address local needs, such as the financing of affordable housing, small businesses, and infrastructure.

The development in California could help build momentum for somewhat similar proposals pending here in the Garden State. Establishing a public bank was among the issues Gov. Phil Murphy campaign on in 2017. While he maintains support for such initiative, there has been little if any legislative movement.

In addition to the Senate bill (S885) that would create a State Bank of New Jersey with broad powers, there is also a more restrictive Assembly bill (A4510) that would establish a public bank to address the needs of marijuana-related businesses unable to access traditional banking channels. Both measures are pending committee consideration and neither has a companion in the other chamber.