What Is a Public Bank?

Definition and Examples of a Public Bank

A public bank is a financial institution owned and operated by the state, city, or county government.

• Alternate name: State-owned bank

Some examples of public banks include the Bank of North Dakota, the World Bank, and the European Investment Bank.

How Does a Public Bank Work?

Public banks offer many of the same financial services as traditional banks, such as checking accounts, loans, and mortgages.

However, their main purpose is to serve the public interest in their area. As a result, public banks put a huge focus on improving their local communities, using most of their resources to:

• Provide low-interest loans to businesses and low-income households
• Fund affordable housing and climate-protection projects
• Create new jobs and stimulate economic growth in their regions

Public banks also work as a type of “mini-Fed” to regional banks, providing them with loans and other banking solutions. They also provide banking services to government departments.

The U.S. currently has one public bank: The Bank of North Dakota. It was founded in 1919 to promote agriculture and commerce in the state. Today, it provides loans, college funding, and banking services to North Dakota residents and institutions.

Public Banks vs. Conventional Banks

On the surface, public banks look a lot like mainstream commercial banks in the U.S., such as Wells Fargo, Bank of America, and Chase. However, there are key differences in how they operate.

First, public banks are owned by the government rather than stockholders. This means they operate as nonprofits that can pour earnings back into the state’s general fund rather than funneling them to shareholders.

Second, public banks are often mandated by law to make decisions based on what’s best for their communities. For example, a public bank in a rural area may focus on providing loans to farmers, while a public bank in an urban area may focus on financing affordable housing.

Last, public banks can also offer cheaper loans and credit products to small businesses and individuals. This makes them an important source of financing for many communities—especially those with a large low-income population.

Pros and Cons of Public Banks

Pros Explained

• Better terms on loans and credit products: Public banks don’t have large overhead costs or shareholders to report to, so they can offer loans and credit products at lower interest rates.
• Focus on community development: Public banks invest money into their local communities, helping to create jobs and improve residents’ quality of life.
• Can help with economic stability: Public banks can help stabilize the economy by providing a source of capital during times of economic turmoil.

Cons Explained

• Potential for political interference: While some argue that public banks are better solutions than traditional banks, they’re still at the mercy of elected officials and board members. So there could be people who disagree with how a public bank operates in their area.
• Lack of competition: Currently, North Dakota is the only state with an operational public bank. So whenever you open your next checking or savings account, there’s a good chance it will be with a traditional, for-profit institution.

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