ireland tasc 1114

Public Banking:

Models and Possibilities

Ellen Brown, JD

Public Banking Institute

TASC, Dublin, Ireland

November 10, 2014

Globally, nearly 40% of banks are publicly-owned.

Mainly in the BRIC countries, which escaped the credit crisis.

The largest banks globally are state-owned, including --

• The two largest banks by market capitalization (ICBC and China Construction Bank)

• The largest bank by deposits (Japan Post Bank)

• The largest bank by number of branches (State Bank of India)

• The largest development bank (China Development Bank).

• The world’s seven safest banks are also publicly-owned, leading with KfW, Germany’s public development bank.

“Economic miracles” occur in countries with strong public banking sectors.

• China

• Korea, Taiwan, Singapore, Hong Kong

• Post-war Germany and Japan

• Brazil, Costa Rica

China: global leader in rapid development

Korea: “Korea’s progress is as if Haiti had turned into Switzerland.”

• So says Ha-Joon Chang in “Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism”

• Per capita income increased 14-fold in 40 years, something the U.S. took 1-1/2 centuries to do.

• How? “The government owned all the banks, so it could direct the life blood of business – credit.”

How public banks help to create economic miracles

1. Bypass the private financial middlemen

draining off 30-40% of national profits.

2. Counter-cyclical lending, aimed at sectors most in need.

3. Cut out interest: government owns the bank, so save 35-40% on the cost of public projects.

Rent in Public Housing Cost of interest on capital 77%

Drinking Water Cost of interest on capital

38%

Garbage Collection Fees Cost of interest on capital 12%

From Margrit Kennedy, http://www.monneta.org/upload/pdf/Pres_MK_CompC.pdf

Interest doubles infrastructure costs

Bay Bridge retrofit:

principal, $6 billion;

interest, $6 billion.

Bullet train:

principal, $9.95 billion; interest, $9.5 billion

The German Sparkassen Model – Focus on real economy

Sparkassen have a 42% market share

of business financing

70% market share in SME finance

Germany:

Local businesses (esp. SME) are

financed by local banks:

Cooperative Banks and Sparkassen

Sustainability – Professionalism – Public Welfare

Sparkassen and Company Loans – No Signs of a Credit Crunch

69.966.764.262.1

58.9

75

50

25

0 2008 2009 2010 2011 2012

New loan commitments of Savings

Banks to companies and Self-employed,

in billion €, change in %

+9.4 +5.5 +3.4 +3.8

+4.8

* Including residential construction; excluding other financial intermediaries and insurance corporations,

source: Deutsche Bundesbank

42,1

27,5

14,0

16,4

Market Shares for Loans to Companies

and Self-Employed* in %, 2012

* Without commercial housing

Source: Bankenstatistik Deutsche Bundesbank and own calculations

Stand 31.12.2012

Rest of the banking sector (other commercial banks, foreign banks, KfW etc.)

4 largest commercial banks

Cooperative banks

Sparkassen-Group

The Strategic Banking Corporation of Ireland – a great fit

Another model: The Bank of North Dakota, the only US

state-owned depository bank. • ND also has:

• the nation’s lowest unemployment rate

• one of the lowest foreclosure rates

• lowest default rate

• only state to escape the 2008 credit crisis

How it works:

• Depository for all state revenues. • DBA of the state. • Capitalized with a bond issue. • Doesn’t compete but partners with local banks to

increase local lending. • Reduced banking costs: no bonuses, fees,

commissions; no advertising; no branches. • Dividends and cheap credit lines replace rainy day

funds.

The BND: profitable, safe, sustainable

• Pays a dividend of $30M/year (pop. 672,000).

• ROE 2008 of 17-26%.

• Competitive interest on state deposits.

• Low-interest loans for local projects.

• Underwrites municipal bonds.

• Mandate to serve the public interest.

The U.S. public banking movement -- 20 states have introduced bills.

Banking crises are making public banks more popular.

• Safer for depositors.

• Countercyclical lending allows sustained growth.

• Less corrupt, more efficient, more profitable.

For more information – PublicBankingInstitute.org

WebofDebt.com EllenBrown.com