Public Banks for Racial Equity: Democratizing Finance to Build Community Wealth

Overview

This report examines how public banks, established by state or local governments to serve the public interest, can address systemic racial wealth inequality perpetuated by commercial banks. It explores how public banks can responsibly manage public deposits to expand fair banking access and build wealth in historically marginalized communities.

Key Findings

• The racial wealth divide is substantial and growing, with Black households holding only $15 in wealth for every $100 held by white households. This disparity is deeply rooted in centuries of systemic injustice, including historical lending and employment discrimination.
• Commercial banks have historically exacerbated racial wealth inequality by systematically denying affordable loans and financial services to Black and brown communities, contributing to persistent neighborhood segregation and poverty.
• Public banks offer a transformative alternative to commercial banks by leveraging public deposits for targeted investments in underserved communities and sectors, fostering economic cooperation, and helping to close the racial wealth divide.
• For public banks to effectively address racial wealth inequality, they must be built on three pillars: inclusive, accountable, and independent governance rooted in social, economic, and racial justice; mission-driven lending in partnership with community development lenders serving historically marginalized communities; and robust capitalization with appropriate regulatory frameworks to operate at scale.
• Partnership lending models, where public banks work with local lenders such as Community Development Financial Institutions (CDFIs) and credit unions, can significantly expand access to fair and affordable credit in historically redlined communities of color.

Policy Implications

Policymakers and advocates seeking to advance public banks should prioritize:

• Establishing clear public purpose missions for public banks that are explicitly rooted in racial, social, and economic justice.
• Ensuring inclusive, accountable, and independent governance structures with diverse boards, including representatives from communities and sectors the bank will serve, and establishing mechanisms for ongoing community input and oversight.
• Co-designing public bank partnership models with CDFIs and other mission-driven lenders to expand local lending capacity and address unmet capital needs in Black and brown communities.
• Capitalizing public banks at a scale that allows them to meaningfully reshape capital flows towards historically excluded communities, and removing unnecessary regulatory constraints that limit their lending capacity.