Dan Ennis | November 14, 2019
Dive Brief:
New Jersey Gov. Phil Murphy, a former Goldman Sachs executive, signed an executive order Wednesday to create a 14-member board aimed at launching a state-owned public bank.
If the initiative follows through, New Jersey would become the second state to run a public bank after North Dakota. California enacted a law last month allowing cities and counties to open public banks, and Los Angeles within days announced plans to open one.
Murphy, a Democrat, campaigned two years ago on the idea that taxpayer deposits sitting in large international financial institutions could instead go into a public bank, which could provide “below market rate capital” to “creditworthy and socially beneficial projects,” such as low-income housing, student loans and small-business lending.
Dive Insight:
Several cities and states have entertained the idea of starting a public bank. Community activists in New York City have called for one for more than a year. Massachusetts’s top cannabis regulator last year urged policy makers to consider creating one to serve growers and dispensaries.
The board Murphy established Wednesday will spend the next year identifying the bank’s capitalization needs, governance and operational structure. The executive order requires the board to meet within 30 days and to file a report within a year.
More pressing issues had pushed the public bank proposal to the back burner. But Murphy said Wednesday that “the time is right right now” to consider the project.
“The concept is a bank owned by us to keep those dollars in New Jersey to benefit our economy,” Murphy said, according to The Associated Press. “Let’s cut the leakage out, which is enormous.”
However, opponents to the effort said Murphy could invest money in New Jersey without creating another financial institution. Michael Affuso, director of government relations for the New Jersey Bankers Association, said the governor could sign an executive order to move state funds out of overseas investments and into New Jersey banks. “We’re opposed to the creation of yet another state bureaucracy,” Affuso told American Banker. “We’re not opposed to his ends.”
Affuso said the state keeps a list of what he described as “gold standard” banks where it could park money. But “the first ingredient is to ensure the bank is not subject to political pressures and is not a political animal, and in New Jersey, that’ll be a difficult,” he told AP.
Murphy said the proposed public bank would work with community banks, credit unions and community development financial institutions in the state. He said the Bank of North Dakota, which was established in 1919 to help promote the development of agriculture, commerce and industry in the state, serves as “an interesting and relevant example,” but that New Jersey needs to devise its own plan.
“There’s no way you can just take that model and just plop it down in New Jersey and that’s why we say it has to be a homegrown effort,” Beverly Brown Ruggia, New Jersey Citizen Action’s public bank coordinator, told AP.
The advocacy group said that although New Jersey already has an Economic Development Agency and a program to fund student loans, the funds don’t adequately cover the demand, particularly in poorer communities.
“A public bank would expand access to capital that is needed to address New Jersey’s most pressing and unmet needs in our state’s most under-served communities,” Phyllis Salowe-Kaye, the group’s executive director, said in a press release.
“I still believe in the ability of a public bank, owned by the people of New Jersey, to be a force for good,” Murphy said, according to American Banker.