Sophie Nieto-Munoz | November 13, 2019
Gov. Phil Murphy on Wednesday took the first steps to make New Jersey the first state in a century to open a state-owned bank.
The Democratic governor signed an executive order to form a 14-member board to oversee the taxpayer-funded institution, which was a centerpiece of his campaign in 2017.
The public bank, which would invest millions of dollars in state deposits usually kept in commercial banks back into New Jersey communities and stimulate the economy, would be owned by the state’s taxpayers, Murphy said Wednesday.
“I still believe in the ability of public banks owned by the people of New Jersey to be a force for good in helping small businesses succeed, in providing student loans at affordable rates and opening lines of credit to municipalities needing long-term infrastructure and affordable housing,” the governor said before signing the order at an event in Newark.
The announcement did generate some controversy. The board, which will be chaired by state Commissioner of Banking and Insurance Marlene Caride, is comprised of nine administrative members and four public members, including Derrick Green, who became embroiled in a financial scandal for his political work in Bermuda, which came to light last year. That appointment drew criticism from Republican lawmakers.
The plans for the bank largely stalled in the nearly two years since Murphy took office, acknowledging that while the “concept is a simple one, turns out executing it is harder than we like.”
“As you no doubt know, we’ve had a few other issues pressing up against the glass since we took office,” he said. “But the time is right — right now — to assess how New Jersey taxpayer dollars can be invested in New Jersey through a public bank.”
It would be the first state-owned bank to open across the country in a century. North Dakota runs the country’s only other state-owned bank, which opened in 1919, and California recently allowed cities to open 10 public banks statewide. Germany, where Murphy once served as a U.S. ambassador to, also runs a public bank.
A former Goldman Sachs executive, Murphy emphasized the bank would not act as a competitor to community and minority banks, but rather as a supporter. A state bank would provide some tax money to community banks for small business loans, small-scale infrastructure projects and student loans, and any profit would return to the state budget rather than outside the Garden State.
Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, said the bank would be an upgrade to public infrastructure, reducing student loan debt and can be tailored to specific needs of residents to complement the current financial sector.
“It’s a mechanism to recapture a portion of the capital that has been invested outside of this country. Let’s bring the money home and invest here in our state,” she said.
But critics argue the opposite: it would hurt local banks already established in the state and allow political influence and corruption to infiltrate.
State Sen. Anthony Bucco, R-Morris called the creation of the bank a “looming catastrophe” for taxpayers in a statement following the signing.
“There would be a substantial risk of default on high-risk loans, with the cost falling on taxpayers since the state bank would not be FDIC insured. The truth of the matter is that new agencies run by the State have a history of falling short. This poses too great of a potential liability for New Jersey families who already struggle with taxes,” Bucco said in a statement.
State Assemblywoman Holly Schepisi, R-Bergen, criticized Murphy for naming Green, one of his political consultants, to the banking board.
She noted that Green came under fire last year after it was reported he was once under investigation for his political work in Bermuda.
“His recent public corruption and fraud allegations should be of great concern,” Schepisi, a frequent Murphy critic, said in a statement. “Governor Murphy is once again intentionally ignoring significant issues involving someone within his administration, and doing so conspicuously. It is a disturbing trend.”
Matthew Saidel, a spokesman for Murphy, defended the appointment.
“Reverend Green is a well-respected colleague whose commitment to historically marginalized communities is second to none,” he said. “He will be a valuable addition to the Public Bank Implementation Board, which is tasked with increasing access to capital for communities traditionally underserved by the financial sector.”
The board will need to meet within 30 days and issue a report in one year that will assess how the institution can exist under the state’s financial system, capital needs from small businesses and develop an overall transparent business plan, Murphy said. The panel will also hold at least three public meetings in the coming year.