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What could your community do if your city or state owned its own bank?
In 2020, the nonprofit organization Action Center on Race & the Economy published a study showing that state and local governments pay $160 billion in annual interest on the money they borrow.
Banks owned by cities, counties, regional authorities, or states—better known as public banks—would enable local governments to recapture that money by borrowing from themselves. By depositing tax revenues into their own bank, their interest payments become not just an expense, but a source of income.
Since each dollar of capital also supports more than a dollar’s worth of loans, putting public money into public banks will leverage those resources to support additional investments.
This means that public banking could be a powerful tool for supporting affordable housing and community economic development. Getting there, however, is far from easy.
The North Dakota Bank Example
To date, only one of 50 states in the United States has a public bank: North Dakota. Why North Dakota? In 1918, a quasi-socialist political party called the Nonpartisan League won control of the state’s legislature and governorship. (To put it mildly, the U.S. political map was different back then). That government then passed an act that created a public bank for “the purpose of encouraging and promoting agriculture, commerce and industry.”
Why did North Dakotans do this? As Judith Crown wrote in Crain’s Chicago Business, back then state farmers “couldn’t raise the capital they needed to purchase equipment, seed and livestock. Commercial interest rates in the state were prohibitive, and local bankers were indifferent.” The public bank was established to help close that gap.
The Nonpartisan League faded long ago, but the public bank has operated continuously since 1919. As Don Morgan, the current CEO of the Bank of North Dakota (BND), explains, the bank is powered primarily by deposits from the state government that have been mandated by state law since its founding. Today, Morgan says, the bank has $1.3 billion in capital. In 2024, BND had $10.8 billion in assets, with a net income of $200.4 million. Total return to the state that year, the bank reported, was $335 million.
BND has a strong track record of supporting the local economy. In May 2020, The Washington Post reported that no state did as well as North Dakota in distributing Paycheck Protection Program loans to struggling small businesses.
Except for a student loan program that it runs, BND does not function as a retail bank. Rather, it works as a “banker’s bank,” working with and through, as Morgan put it, “our 91 financial institutions in the state—our community banks and our credit unions.” Typically, the local bank or credit union originates the loan and BND then “participates” in the loans—most often by splitting the loan 50-50 with the local bank, which then allows the local bank to make additional loans to other borrowers. BND’s website proudly declares that North Dakota has “per capita the most community banks of any state in the nation.”
BND is still popular despite the different political landscape. North Dakota Governor Kelly Armstrong, speaking at the YIMBYtown conference in September 2025, noted that there was no way the state could pass something like this today without being accused of socialism, and yet “we like having it.”
While BND is unique in the U.S., public banks are exceedingly common internationally. Excluding central banks like the Federal Reserve, the Public Banking Project at McMaster University in Hamilton, Canada, indicates that there are over 900 public banks worldwide that together hold over $55 trillion in assets. One of these is the German-based KfW (Kreditanstalt für Wiederaufbau, or the Credit Union for Reconstruction) a public bank that was initially founded to leverage U.S. Marshall Plan payments to invest in postwar reconstruction.
Mapping the State of Play
Public banks may be the norm internationally, but in the U.S., North Dakota’s stands alone. That, however, may soon change. In 2011, a national nonprofit, the Public Banking Institute, was founded to “spread awareness of the transformative power of public banking and to support efforts to create public banks at every level of government.”
Advocates have made some gains, even though no state has yet established its own public bank. In 2019, California enacted The California Public Banking Act, which creates a framework for forming banks in different regions or cities. Several local campaigns to form such banks are currently underway.
More recently, California advocates, with support from the Service Employees International Union, the state’s largest union, successfully pressured the legislature to pass legislation that created a program known as CalAccount. The new program, explains Trinity Tran, executive director of the California Public Banking Alliance, works through existing private banks to offer state residents a “free debit account banking option with no minimum balance requirements and no overdraft fees, as well as paycheck and government payment direct deposit.” While not a public bank, the program offers a tangible example of how public finance policy can materially benefit people’s lives. The policy victory benefits coalition members now—and sets the stage for future gains.
In Vermont, efforts to create a public bank fell short, but the campaign led the state to dedicate 10 percent of its cash to a local investment pool, which has resulted in over $100 million in investments in housing, community economic development, and disaster recovery. As of June 2025, the state estimated that nearly 1,300 housing units had been financed through its “10% in VT” program. Similarly, in New Jersey, public banking advocates fell short of winning approval for a public bank but got the state to allocate $20 million in seed funding to help capitalize its Social Impact Investment Fund.
Not all public banks are alike. A 2024 policy brief published by the Public Banking Project and the Climate and Community Institute noted that “there are no guarantees that public banks will serve public purposes. Democratic governance is key.”
Speaking with advocates in different states illustrates how their goals for a public bank can differ. Andy Morrison, associate director at the New York-based New Economy Project, which participates in both citywide and statewide coalitions advocating for a public bank, notes that the New York City campaign, which began in 2018, was developed through town halls hosted around the city. Based on the input received, the coalition settled on four goals—housing justice, worker justice, financial justice, and climate justice—which would be realized through investment in community land trusts, small and worker-owned businesses, community development financial institutions, and renewable energy infrastructure.
As Morrison notes, New York City’s budget exceeds $100 billion. A 2023 report by James Parrott and Michele Mattingly of the Center for New York City Affairs found, based on data from 2017 to 2022, that the city’s cash balance typically ranges between $4 and $12 billion, with a low around $2 billion and a high around $14 billion. A public bank that held these cash deposits, Parrott and Mattingly argued, could finance over 17,000 additional affordable housing units in its five-year start-up period alone.
We really want to see a bank … that will serve the interests of groups that don’t really get served adequately by the private banks: people of color and women.”
Ruth Caplan, co-chair of the campaign for a public bank in Massachusetts
Advocates in different states have chosen different focus areas. In Massachusetts, Ruth Caplan, the public bank campaign co-chair, indicates that advocates in her state have emphasized the need for more lending to small business, particularly for owners of color, in their advocacy. As she puts it, “We really want to see a bank here in Massachusetts that will serve the interests of groups that don’t really get served adequately by the private banks: people of color and women.” Angela Merkert, executive director of the Alliance for Local Economic Prosperity, says New Mexico has a similar focus.
In California, Tran notes, different cities have different priorities. In Los Angeles, where the city-owned electrical power provider is eager to invest in green infrastructure, Los Angeles public bank advocates have prioritized helping to finance that investment. Most other cities get their electricity from investor-owned firms that are less eager to invest in green infrastructure, and therefore focus on other things, such as supporting business development and affordable housing.
Surmounting the Organizing Challenge
If public banks can help make financing affordable housing and public infrastructure less expensive, by making it possible for lending to occur at lower interest rates, why are they still a rarity in the U.S.? Walt McRee, chair of the Public Banking Institute, offers two reasons. One, he says, is the challenge of public education. McRee notes that building public understanding in state legislatures and the public at large about what a public bank is has “taken some time. It’s not a bank where you can get a car loan; it’s not a retail bank. It’s a banker’s bank—a wholesale bank that … is part of your financial infrastructure.” He elaborates: “We see banking as a public utility as opposed to [a] private profit-seeking business. That’s the difference. Our money should work as a utility. Right now, it is working with private profiteers using our money to invest in someplace that is not our hometown.”
The second obstacle, he notes, is the “power structure.” Simply put, if that $160 billion in interest were earned by public banks, it would be money that no longer benefits private banks.
Not all private banks are affected in the same way. Most community banks and credit unions are too small to manage large city and state bank accounts. As a result, states and large cities typically bank at large institutions. In their report on the potential for a New York City–based public bank, for instance, Parrott and Mattingly noted that over 87 percent of New York City government deposits as of Dec. 31, 2021, were held by Bank of America, Citibank, or JPMorgan Chase—three of the “Big Four” banking institutions.
Surprisingly, it is usually the smaller banks that publicly oppose public banking measures. Arguably, these smaller banks (and community development financial institutions) have the most to gain from a public bank that can partner with them. After all, the fact that North Dakota has the nation’s highest per capita rate of community banks suggests that having a public bank reduces merger pressures and helps keep local community banks operational. But that is not necessarily how local bankers see it.
According to Merkert, in New Mexico, the “biggest barrier has been the independent community bankers’ association. They keep espousing [that] we’re going to take lending away from them.” This may reflect, she adds, that “the Wall Street banks [put] pressure on community banks to show up and speak up at the hearings” when public banking is being considered.
Similarly, Morrison notes that an effort to create a public bank in Rochester, New York, last year, which enjoyed support from the city council and mayor, nonetheless got held up in the state legislature because the bill “hit a snag with the Greater Rochester Chamber of Commerce and a couple of the local community banks.”
In all the conversations … I’ve had, local politicians [and] state politicians get … the need for public banking.”
Craig Swartz, political director for the Ohio Public Banking Coalition
Still, advocates remain optimistic that community banks and local business groups will come to see the benefits of a public bank. In 2024, Craig Swartz ran as the Democratic nominee in a heavily Republican district for a state House seat. While his campaign fell far short, Swartz, who now serves as political director for the Ohio Public Banking Coalition, used that campaign as a platform for promoting public banking. After speaking during the campaign to an initially highly skeptical Ohio Chamber of Commerce audience, the two dozen-plus people present “were all shaking my hands. They were all smiles,” Swartz says, and they were amenable to him coming back to address them after legislation is formally introduced. He adds, “In all the conversations—in all the Zoom calls—I’ve had, local politicians [and] state politicians get … the need for public banking, [for] public financing [right away], whether they are Republican, Democrat, or Independent.”
Learning from North Dakota
In North Dakota, BND is essentially part of the furniture. Just as many people in the other 49 states may have a hard time imagining how a public bank would perform in their state, folks in North Dakota have a hard time imagining what the state without a public bank would be like. Morgan notes that while he has only been CEO of BND for a little over two years, he has “worked with the Bank of North Dakota as a partner bank for a quarter of a century.”
The bank has developed many programs that support community economic development. For instance, it finances school construction statewide at a substantially below-market 2 percent interest rate. Morgan says the bank has $1 billion invested in schools, clean sustainable energy, and water infrastructure.
It also has a rural housing program. As Morgan explains, “One of the issues with housing in North Dakota is that we have got a lot of borrowers with great credit scores; they can support [a loan] from a debt-to-income standpoint, but they can’t get an appraisal on a house that qualifies [it to be sold] on the secondary [mortgage] market … because it is [in] a rural North Dakota community,” so there typically aren’t similar nearby home sales for the appraisers to use for price comparisons, or comps. As a result, homebuyers were having difficulty getting loans. So, BND worked with the state to develop a program in which the state bank would carry the loans on its balance sheet, keeping local banks from having to hold the loans in their portfolio.
How does BND make it pencil out? The key is to carry a lot of market-rate loans. “We have $5 billion in commercial and agriculture loans and $1 billion in student loans, so we have $6 billion making us money,” says Morgan. “And then we’ve got $2 billion in below-market-rate loans.”
Given this balance, Morgan cautions those seeking to establish public banks that “you first have to build the bank and allow the bank to build its balance sheet and its systems and structures to become profitable” before “you have the money to do some of those more creative special programs.” While some benefits, such as the focus on lending to meet state needs, are true of all the bank’s lending, greater benefits are achieved over time. Public banking done right, Morgan contends, is a “multigenerational idea.”
We don’t get anything done without our 91 community banks and credit unions in the state.”
Don Morgan, CEO of the Bank of North Dakota
The other key feature, Morgan says, is close partnerships with local financial institutions: “We don’t get anything done without our 91 community banks and credit unions in the state. … They’re frontline for us.”
The business case for public banks is sound, says Morgan, and the financial benefits of local community banks and credit unions having a state public bank partner are significant: for local banks, having a public bank partner offers liquidity options, strategic health, and more ways to manage their balance sheets, boosting profitability. These are all things, Morgan adds, that make communities healthier and more resilient.
Morgan emphasizes that a public bank does not compete against local banks. The goal, to the contrary, is “to prop each other up.”
What’s Next?
Advocates are advancing public banking campaigns in many places, with campaign progress particularly notable in large urban centers. In San Francsico, Supervisor Jackie Fielder has proposed a 2026 ballot measure that would start the city on the path to forming a public bank, funded by a tax assessed on the transactions of credit card companies, consumer lending companies, and mortgage brokers. In Los Angeles, Tran says, 9 of 15 city council members have committed to contributing their own discretionary dollars to fund a city public bank feasibility study. In New York City, Zohran Mamdani, the city’s new mayor, has advocated for public banking, having been a cosponsor of legislation to support public banking back when he was in the state assembly. Meanwhile, at the state level, in New Mexico, Merkert says, advocates are gearing up for a push to pass public banking legislation in 2027.
As a technical matter, a public bank startup can occur quickly. Dan Pelegero, finance director of Public Bank Los Angeles, notes that BND was started within six months of legislation being passed that required state tax revenues be deposited in the bank. Similarly, the German KfW, because it was started with Marshall Plan funding, was launched quickly. In both cases, “there was political will behind them and all the funding was already in place,” says Pelegero. More often, Tran notes, “a great deal of consensus building and handholding” is required, which slows progress.
Still, advocates are hopeful. As Caplan puts it, “Money is at the center of our system. Having public banking is key to having our democracy work.”
Editor’s Note: This article has been updated to correct the spelling of Walt McRee’s last name.
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