Large national banks invest their funds in the stock market on Wall Street, not Main Street. These commercial banks hold and manage funds for the vast majority of cities, counties, and states in the US and charge us fees for managing our taxpayer funds. They invest taxpayer funds in stocks and bonds for the benefit of their shareholders, and they make money on the taxpayer money under their control. Profits from investments made with taxpayer funds go to the banks’ shareholders—not to the citizens or to the city, county, or state. Given the boom and bust cycles of the stock market, it is a risky business.
Community banks are commercial banks whose scope is limited to a local area. Their focus is local—not national or international. Community banks offer personal and business loans. They invest in local, Main Street businesses.
Public banks invest taxpayer funds locally in projects that benefit the public good. Public bank funding of infrastructure projects saves state and local governments millions in interest payments and debt service because essentially the government is lending itself money. State public banks also can loan taxpayer funds to local governments for infrastructure projects. For example, the City of Tucson borrowed millions to improve local roads. If Arizona had a state bank, it could offer the City of Tucson a low-interest loan to fund infrastructure improvements. The city would save millions on this deal, and the state of Arizona would make money. With our existing system, millions of dollars in state funds are held in a Wall Street bank, the state pays fees for that service, and the money is unavailable for local investment. (Taxpayers, the city, and the state lose; Wall Street wins.)
Public banks also invest in loans to local businesses, entrepreneurs, farmers, and college students. Loan packages can be structured in different ways, but often the public bank backs or funds loans which are managed by local community banks.
In addition to helping businesses and governments, public banks help citizens. Millions of Americans have crushing debt from student loans, toxic mortgages, or medical bills. Some people are paying as much as $500-1500 or more per month on student loans. With this level of debt, many young Americans can’t start families, buy cars, or finance home mortgages. Public banks can not only offer competitive, low-cost student loans to residents, but they can also buy up consumer debt and excuse it or refinance it. On a personal level, debt relief would help thousands of Arizonans. On a macro level, debt relief would kick start the economy by putting millions of dollars into circulation. Public banking is good for Arizona.
2 thoughts on “How Do Commercial Banks, Community Banks & Public Banks Differ in Terms of Investments?”
Nice article, Pamela. I like the way you gave local examples to illustrate the points.
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