Public bank puts community capitalism to work | My opinion
We all know New Mexico’s national rankings are poor when it comes to community economic development, regenerative agriculture, early childhood education, alternative energy, and improved infrastructure, among others. And we also know that, when federal pandemic stimulus funds wane after 2022, and fossil fuel revenues decline in the years to come, continued investment in these and other priority spending areas will be an issue. huge challenge for the legislature and the governor.
But what if there was a solution that turned a one-time investment of $ 50 million in pandemic money into an ongoing lending institution of $ 400-600 million without any additional state support? is required? What if this lending institution was locally focused, working through credit unions, community banks, and community development finance institutions (CDFIs)? What if we promoted capitalism at the community level? This is the promise of the Public Bank of New Mexico.
Yes, the legislature funds loan programs through various state departments including Economic Development and the New Mexico Finance Authority. They are good programs. But there is a crucial difference between how they operate and the public bank. It is working capital, which is affected by the legislature from year to year, loaned and repaid with interest.
The Public Bank of New Mexico will increase its asset base, as banks do, by eight to ten times the amount of its equity. Thus, 50 million dollars allocated to the capitalization of the bank will make it possible to lend up to 500 million dollars the first year without additional credits.
Here are some of the benefits that the public bank would bring to the economic growth and development of communities:
u As a local, non-profit bank, Public Bank of New Mexico lending is geared to the needs of the local community. Deposits, generating interest on treasury bills, just like other banks, would be used entirely for local economic and community development, not for national and international investment and shareholder profit.
u New businesses would be launched, additional TSO revenues would be generated and new jobs would be created.
u Public bank loans will support the priorities of “Empower and Collaborate”, the government’s new 20-year strategic economic development plan.
u By working through its lending partners (credit unions, community banks and CDFI), the public bank will increase access to loan support, reduce inconsistent borrowing criteria and increase support for innovation, especially in our agricultural businesses and the food system. Loans that are smaller, shorter term, or made to historically underserved populations and businesses will become more feasible because public banking allows for higher, but not unreasonable, risk by lending at low rates. lower interest.
u The Public Bank of New Mexico will not compete with its partner lending programs. Indeed, as entry points for borrowers, partner loan programs will develop new clients, thereby expanding their business while improving the pressure generated by fintech, banking technology and regional bank mergers.
u While supporting previously underserved local business owners and entrepreneurs, the added value of public banking also includes reducing the need for small business owners to engage with payday lenders or maximize their cards credit, two destructive high interest rate options currently in use.
u The Federal Reserve has announced that it will raise interest rates four times in 2022. The Public Bank of New Mexico may reduce the impact of the increases because, as a non-profit entity, it will issue loans at lower interest rates.
The Public Bank of New Mexico would operate with a board of directors comprised of various members of corporate, community, and state government, operating on democratic principles. Thus there will be a local contribution while ensuring visibility for its sole owner, the State. Licensed as a state bank, the practices of the Public Bank of New Mexico will comply with FDIC and Federal Reserve compliance standards.
Now is the time to energize capitalism in our local communities. Now is the time to create the Public Bank of New Mexico.
Peter Smith is a member of the board of directors and Angela Merkert is executive director of the Alliance for Local Economic Prosperity. Smith lives in Santa Fe, where he is also a member of the board of directors of KSFR radio.