Help keep family & friends informed by sharing this article

By Joe Bongiovanni, The Money Apprentice

& Howard Switzer, Co-Chair – GPUS Banking and Monetary Reform Committee.

Both authors are active Members of the Alliance For Just Money.

The following reflects the opinions of the authors, and not necessarily those of any organization with which they are associated.

During the March 8th Alliance For Just Money’s Monetary Reform Coffee House (MRCH), David Cobb and Debbie Notkin spoke on the topic of Public Banking (PB). They presented on their successful efforts in California getting PB legislation (AB-857) passed. The MRCH discussion confirmed that PBI’s model of Public Banking includes ‘joining the Fed’ to gain the private commercial banking system’s power to create deposits – using fractional reserve banking.

According to Debbie, creating new money to lend is a key .

It’s one of our PILLARs for our argument ….. that this is why we need Banks; not Revolving Loan Funds; not Credit Unions   —  because we NEED the advantages of fractional reserve banking in the existing system of debt….  “

Here we wish to answer the question: Why Not do PBI’s model of public banking?

First – on “Public Banking” History

David and Debbie gave two major, historical points of reference for supporting PBI’s national ‘Public Banking’ legislation – the Bank of North Dakota (BND) in this country, and the Sparkassen Savings Bank (SSB) system in Germany.

Suffice, hopefully, to observe that neither the 100-year-old BND nor the 200-year-old SSB system uses the fractional reserve model proposed by PBI. Neither have ever done so. Sparkassen’s historic and exemplary “Savings Bank” model does lending against its broad-based ‘savings’ deposits’. As does BND, generally.

Thus, there is no historical success for Public Banking doing fractional reserve banking. Not on this Planet that we know of. The 10-year history of PBI promoting the belief that history supports the PBI public-banking measure is today shown to be broadly misleading, both to this country while facing our present debt peril, and to our progressive- or otherwise-thinking politicos now striving to comprehend whether to get on board with ‘public banking’ or, if they only knew about it, the Alliance’s Just Money reform.

We sense that ALL advocates of the Public Banking Bills, whether at local, state, or national levels, BELIEVE that the BND and European experience provide a ‘working example’ for what is being proposed. This would present a false working premise and a faulty foundation on which to build a popular public-banking movement. Thoughtful people of all political stripes should know better and beware.

David mentioned his strong Green Party background – and being a revolutionary.  We share those identities. In solidarity, then ….

First, let’s look at the Green Party US platform and its money and banking planks.

The Green Party Platform promotes Public Banking only as is done by BND and the Sparkassen SB system. Such success would add a supply of sorely needed public ‘credit’ with which to finance an abundant and progressive (if not also conservative in the best sense of that word) public policy framework.

Conversely, the Green Party position is to oppose any Banking – including any Public Banking – based on fractional-reserve banking (PBI’s proposed model.)

Green Party US Platform 2020

Section IV, subsection I, #15:

Public Banking – We support Public Banking consistent with the ‘Greening the Dollar’ plank – that is, that the power to create money no longer resides with banks, private or public. We support the expansion of state and municipal public banking based on the model of the Bank of North Dakota, which does not create money when it lends, but lends only based on funds already deposited with the bank.

OK, really. It is the Money.

The ‘fractional-reserve’ nature of the PBI proposal is not the only reason to seek its reform. We invite David and Debbie to please explain PBI’s rationale for joining the ‘bankers money’ system, or, alternatively, to join us in the Alliance For Just Money and the Green Party in true, revolutionary reform of our money.

Beyond the history of public money and the Green Party’s Public Banking advocacy, the fuller reason the PBI financing model is unacceptable public policy is the comparable scale of the public benefits available from each policy.

If the citizens of the States and their Municipalities (Counties, Cities & Towns, jointly) want to enjoy the substantive benefits of ‘public money administration’, then our “Just Money” reforms (based upon the NEED Act introduced by Rep. Kucinich in 2011) provide an order-of-magnitude difference in potential benefits – being many times greater than the PBI Public Banking model could provide.

The PBI model also assumes resolving the Constitutional issue of empowering the States to separately create new United States money. Somehow. The blessings of the Fed and Private Banking communities for this new PBI institutional relationship are ultimately questionable. And even if they do somehow agree, fractional reserve banking would put state and local government’s deposits at significant market risk.

David and Debbie and other advocates for Public Banking: Instead of advocating public banking based on debt-based money, how about helping us to manifest the truly revolutionary public money power, and leave aside advancing the public debt power?

Much was made about BND’s near 18 percent ‘returns’. BND’s returns are positively skewed by the fact that BND owns about $2 Billion in U.S. Treasury Securities – Bonds and Notes that we federal taxpayers support with our interest payments.

Having $2 Billion in un-lent funds gives BND a lot of financial wiggle room, including providing BND extraordinary income levels that drive its overall financial strength. But let’s be more realistic in what public banking can do today.

Returns’ are usually measured against assets and investments (loans in the case of banks), or against the Equity capital of the institution.

So, the first thing that all PBI banks need, once chartered, is a source of Equity funds to support the capital structure of the Bank. BND floated a $2M Public Bond over a hundred years ago. Absent its own bonded indebtedness for Equity, each public bank (whether PBI-style or Just Money based) will require an ‘accumulated retained earnings’ portfolio, or other strategy of ‘Equity’ capital formation. That will take some time.

The Public Policy comparison that is appropriate to our progressive banking and monetary reform proposals (PBI vs. Kucinich H.R. 2990) is what each option provides to their targeted non-federal public institutions.

Part of the truly ‘revolutionary’ brilliance of the Kucinich Bill is that it provides for seigniorage-sharing between the federal government and the States. ‘Seigniorage’ is simply the ‘gain’ based on sovereign money issuance powers. It’s about time that gain goes to We the People for the public good!

Given our history that, after both trading for and usurping lands from our indigenous ancestors, the original Colonies gave up their sovereign rights of money creation ‘gain’ to the evolving federal government in return for a promised well-run national money system, we should expect such a system to exist. Instead, the 63rd Congress privatized our national money a hundred and eight years ago, screwing the States at every turn, and then shoring up the system rather than reforming it each time it failed. This puts the big private banks well in control – of both government and money – as the Pujo Committee investigations revealed.

It is 2021, the People Want Their Money Back.

Let’s see how the Kucinich (NEED Act) post-reform public money financing scenario compares with PBI’s, using the State of California – being both the largest state economy and the most advanced public banking jurisdiction – and the state that was the focus of David and Debbie’s MRCH presentation.

Under national NEED Act-type money reform, all new money needed in order to keep the purchasing power of existing money stable will be originated through Public Spending on approved budgeted items. Twenty-five percent of that annual new money will be passed through and enter circulation through monetary grants to the states, granted on a per-capita basis.

Back of the envelope calculus, to make our point.

Our national economy is generally estimated around $20 TRILLION today. Were the Monetary Authority’s “GDP-gap” to recognize 2.5 to 3 percent growth potential, then some $500 to $600 Billion in new money “Purchasing Power(*)” would be authorized to close that gap. Following the NEED Act’s proposed revenue-sharing imperative, some $125 to $150 Billion of that new “money” would be forwarded to the States to do with as they see fit.

(*) Note : The term ‘Purchasing Power’ is used to include the logic contained in Irving Fishers Money Equation. Growth in the Economy (GDP) must be matched by the money supply needed (M) times the Velocity (V) of that money supply. In terms of public monetary policy then, it is whatever amount of new money is needed to provide the national economy with $600 Billion in new Purchasing Power.

California is near 40 million in population, or about 12 percent of the nation’s population. With 12 percent of the population, California would lay claim to 12 percent of the States’ TOTAL $125 to $150 Billion ANNUAL allocation.

Twelve percent of the average potential of $137 Billion is $16.6 Billion in California State Revenue-sharing gains every year. No strings attached.

Putting $16.6 Billion next to the ‘expected’ PBI rates of return on investment or equity reveals there is NO ‘public-benefit’ comparison.

Assuming BND’s return-on-investment (ROI) level, California’s Public Banks would require some $92+ Billion in their combined lending portfolio. (Not impossible by the way, but a long way to get there.) Estimating the return required on these Banks accumulated ‘Equity’ Capital levels – would be a less-timely gain, and even more difficult to achieve.

PBI’s proponents must consider the time required to deliver a $92 Billion lending portfolio, or more importantly, to generate some $16.6 Billion in profits to direct into state coffers from day-one under this risk-filled reform.

This level of state Public Banking-derived “income” is likely impossible to achieve, absent a 30 – year history of successful public banking.

It’s time to stop pretending. Public Banking cannot deliver on the panacea implied in selling the histories of BND and SSB.

Instead of public banking, we ask ‘please’ imagine a new nation where every U.S. state has a myriad of public financing authorities, all funded by the ‘money powers’ of our inter-governmental sovereign authorities – that of monetary creation, issuance and ‘gain’ by the Public.

PBI and others drawn to public banking are and will be far better off advocating PB be done with, and only with, Just Money – hence only after NEED Act-like reform – thus employing the successful financial intermediating approaches of BND and Sparkassen.

Finally, the American Monetary Institute (AMI) and its legacy – that is, the Alliance, our Green Party and the NEED Act itself – all stand opposed to ANY ‘fractional reserve banking’, by anybody. PBI is moving towards fractional-reserve banking – serving whose interests is unclear – while our true progressives and, yes, our revolutionaries are working for its termination.

We cannot both be successful. There is no win-win. ‘Fractional reserve banking’ itself stands in the way of true progress, justice, and sustainability.

Thus, we NEED legislators from all sides of the aisle to update and sponsor or co-sponsor the NEED Act, which reads in part as follows (emphases added).

THE N.E.E.D. ACT H.R.2990; 112TH Congress

Title I

Origination of United States Money


(a) In General. — Pursuant to the exercise by the Congress of the authority contained in the 5th clause of section 8 of Article I of the Constitution of the United States of America

(1) the authority to create money within the United States shall hereafter reside exclusively with the Federal Government; and…


Any person who creates or originates United States money by lending against deposits, through so-called fractional reserve banking, or by any other means, after the effective date shall be fined under title 18, United States Code, imprisoned for not more than 5 years, or both.


Reconstruction of the Federal Reserve System


(a) In General. —Subchapter I of chapter 3 of title 31, United States Code, is amended by adding at the end the following new section:


(c) Duties. —

“(1) MONETARY POLICY. —The Bureau shall—

(A) administer, under the direction of the Secretary, the origination and entry into circulation of United States Money, subject to the limitations established by the Monetary Authority; and

(B) administer lending of United States Money to authorized depository institutions, as described in section 403 (‘Revolving Fund’) to ensure that—

(i) money creation is solely a function of the United States Government; and

(ii) fractional reserve lending is ended.

Thanks for listening.

Share Now

About The Author

Notify of

oldest most voted
Inline Feedbacks
View all comments
Howard Switzer
Howard Switzer
3 years ago

No need to predict, it is an impediment now, it is a distraction now, using up all the oxygen in the room, and the problem with that is that there is no time to waste with distractions and they are a very effective distraction as you say, with lots of steam.

John Howell
John Howell
3 years ago

Howard and Joe argue against public banking as a distraction from, or worse, as an impediment to monetary reform. That is hard to predict. The public banking movement now has quite a bit of steam under it, more than monetary reform can claim. As Howard and Joe point out, the scale of benefits from public banking will be limited. Even if a few public banks are opened by cities or states in the next decade or two, the benefits will be limited to those jurisdictions. The Wall Street banking establishment, backed by the Fed, which Wall Street mostly controls, will… Read more »

joe bongiovanni
joe bongiovanni
3 years ago
Reply to  John Howell

On John Howell’s Reply Comment to Howard Switzer and myself.   Misleading, Wrong, and completely unspportive of the Alliance Mission  1.       “Howard and Joe argue against public banking as a distraction from, or worse, as an impediment to, monetary reform.” Where do we so argue those terms?   No. We never argued anything against the ‘public banking’ steamroller. We only ever posited what is included in the Alliance Mission Statement – against fractional-reserve banking, so-called. What we did ‘argue’, so to speak, was … ‘ (PBI) Public Banking cannot deliver on the panacea implied in selling the histories of BND and… Read more »

Govert Schuller
Govert Schuller
3 years ago

Joe, The paper in which Werner shared his experiment with a local German bank is the one below. He took out a loan from a Raifeissen bank (Raiffeisenbank Wildenberg e.G., a cooperative bank in Lower Bavaria, to be precise). Dr. Cassell made it clear that you have to differentiate between the Sparkasse, cooperative banks, state banks and the big international banks. I tried to get clarity from him to see what lending model is applicable to Sparkasse, but did not get a clear, satisfactory answer. Will try again. Werner, Richard A. 2016. “A lost century in economics: Three theories of… Read more »

joe bongiovanni
joe bongiovanni
3 years ago

In the interest of promoting actual, relevant understanding on these matters, please say where in that paper it says anything relevant to Howard Switzer and my initial Blog statements and position about the PBI model for public banlking in America.?
Does it say, for instance, that BND and Sparkassen are not fully-reserved banks?
Or what relevant conclusion does it provide?


Govert Schuller
3 years ago

Joe, First, I do agree with this blog’s position that public banks should not be constituted with fractional reserve privileges. That said, the relevance of Werner’s paper to this discussion is to make a differentiation between different kinds of banks and garner the evidence how they generate loans. Minimally speaking Werner only proofs that a specific bank in Germany creates credit out of a promise to pay. Of course he extrapolates his conclusion to all deposit banks and has not been challenged in that. The question still is: What evidence can you garner that makes the case that Sparkasse banks… Read more »

Howard Switzer
Howard Switzer
3 years ago

I agreed the BND is not a good example (helping Big oil and finance while not helping farmers). Ben posted an article on Gellibrand’s bill to make the post office an FRS bank too. I guess the strategy is to make all banks FRS banks.

David Cobb
David Cobb
3 years ago

In the interest of transparency and full disclosure, Howard Switzer sent me this essay before it was published here and asked for my thoughts. My reply was:

“I think Public Banks are better than Credit Unions, and that Credit Unions are better than Community Commercial Banks, and that Community Commercial Banks are better than Wall Street Commercial Banks.

I don’t think that the BND is the best example of how to operate a Public Bank.”