How Can Public Banking Make Peoples' Lives Easier?
Right now, the only banks are privately owned and can set whatever rules they want. What if there was a public alternative?
Hello, friends!
Last time we did a more formal article, we talked about ways the Federal government could ensure that anyone who wants to work can find a job. Now, I want you to think about someone who just received their first paycheck. Where do they go with that little slip of paper that will hopefully allow them to thrive? How does that become something they can use to make their lives better?
While it’s not the only step, the most common one is probably, “Take the check to the bank!”
Ahhh, but what if this person is young and doesn’t have an account? What if their check doesn’t cover the minimum balances a bank might require so that it doesn’t charge per-month. Well, let’s talk about ways to improve the banking system using Public Banking.
This topic was suggested by Joe Sackman III & Marc Rosen.
How Does Banking Work In General
The principles behind a bank are actually not very complicated, but you’ve got to keep your eye on what cup the ball is under.
You provide the institution with, let’s say for the sake of discussion, $10,000, to establish an account.
That ten thousand dollars is not kept in a tiny little box with your name on it. Instead, you are credited with the bank owing you $10K, just about as if you’d loaned the bank that money in the first place, and the money you gave is used to provide loans to other people for businesses, home repairs, or medical expenses (at least, until we get Medicare For All in place).
The bank is able to make a profit because it charges a certain amount of interest on the loans it gives to individuals. Making up numbers, let’s say they charge 3%, and that loan is paid back at a total of $10,300.
Your savings account will also earn interest, but less than the bank would charge to lend money. Say, you get %1/year. So after a year, your account will have $10,100. You’ve made a tiny profit off of your deposit-is-kind-of-a-loan to the bank, but that money remains accessible to you at any time you might need it.
You’ve made $100, the bank has made $200, and the person who needed the loan got the loan. Everything’s great, right?
Flaws With Banking Systems.
Well, the above exercise was kind of a snapshot of a system that doesn’t really exist, anymore. Banks don’t necessarily need your money to loan others; they frequently loan more than they have in reserve. In fact, historically this has been a major problem, like when overextended banks were run out of business by depositors seeking their funds during the Great Depression.
But let’s go back to our newly-employed, first-job, no-bank-account person who is looking to do something with their check. Their first choice is to just go to a check cashing place, sign the check over, and get cash in the amount in question. I used to drive my friend to the check cashing place all the time. The other option is to set up an account, and there are three possible stumbling blocks that may or may not be encountered at any given time.
The first is, well, there are a lot of banks. Granted, there’s been some consolidation over the years, but off the top of my head? Chase, Wells Fargo, NYCB, Citibank, Capital One, Jovia, and the list goes on. You may have relatively local banks in your area, such as Glens Falls National in Upstate NY, but you most certainly don’t have an easy time narrowing down your choice - or, if you’re in an isolated area with only one or two ‘players,’ you may not have much of a choice.
The second and third problems are interlinked: What’s a bank going to do with a relatively small deposit, say a few hundred to a thousand dollars? Amounts that small are basically trivial to a trillion-dollar industry, and just offering an account does have its drawbacks. The consumer wants to be able to cash a check with a cell phone camera; consumers want to have direct deposit so they don’t have to go to the bank for recurring salary checks; they want the be able to check their balance at any time online; they want a tiny little card they can use to pay for things at the store.
Therefore, banks will usually do one of two things: Either they’ll require a minimum balance in your account, and/or they’ll charge you a service fee if your balance is too low. A hypothetical example: Your balance has to be above $1,000. That means your first check has to be above $1,000 to open the account. But, let’s say they allow smaller accounts, they just charge $10/month if you end the month below the target balance.
These are just some of the innumerable ways that banks can skim a little extra money off of your money. What if there was another solution?
Public Banking Is A Solution!
The idea of a public bank is just what it sounds like: Instead of going to a private institution, you entrust your money to the government. The government might not pay as much interest as a private bank does (or, they might), but they operate at economies of such scale that they dwarf even private banks. There might be less fancy bells and whistles on the thing, but if all you need is a simple, low-balance checking account? This should be easy.
The U.S. Government has experimented with this before in the form of the United States Postal Savings System. That’s right! They’ve used post offices as banks before. While post offices aren’t necessarily close to everyone, they can’t be that far from everyone, either, making them an excellent auxiliary place to deposit checks for use.
Public Banking would also choke off some of the advantages that go to the elephant in the room: Payday Loans. I’ve talked a bit about check cashing, which is when you sign over your check for cash, but there’s a nastier element to that as well: Getting a loan based on your check so that you “get your check early” but also have to pay interest on it. These loans have crushing interest rates, meaning that your hard work and the salary it brought get eaten up by the person or organization lending you the money.
We already pay the clerks and we already have the infrastructure to handle making public banking more accessible through revitalizing the Postal Savings System. Without the profit motive - and without the risk of a financial crash annihilating all of a depositor’s wealth but what’s covered under the Federal Deposit Insurance Corporation, public banking would be a great alternative for consumers. While it’s true it might not have the trim level of a private institution, it allows people who are just getting started - or, re-started - to have a better chance of preserving the money they take in and building a life with it.
Thank you for reading The Progressive Cafe. If this article has helped you, please consider signing up for our mailing list. This article is by Jesse Pohlman, a sci-fi/fantasy author from Long Island, New York, whose website you can check out here.