Could Mass. get into the banking business? Maybe.
That’s not to say it’s a sure thing that financial services chairs Senator Paul Feeney and Representative Jamie Murphy will endorse the idea, especially in the face of steadfast opposition from the state’s banking industry. They’re expected to meet again on Saturday to discuss and possibly act on a number of pending bills, including the public bank legislation, in time for the latest reporting deadline. Maybe the committee punts again. But the clock is running out, with an end to 2022 formal sessions just three months away.
This time, the committee has a new endorser to consider: The economist who, a decade ago, wrote a report that dashed cold water on the idea is now lending her full support.
Yolanda Kodrzycki downplayed the need for a state-owned bank back in 2011, when she coauthored a report while at the Federal Reserve Bank of Boston. (She retired from the Fed in 2015.) A state-owned bank was then viewed as a potential accelerant to lift Massachusetts out of the Great Recession, or a potential cushion to soften the blow of a future economic crash.
So Kodrzycki and a colleague analyzed the only state-owned bank in existence at the time, Bank of North Dakota, to see what kind of role that institution played in its home state’s low unemployment rate. The answer: not much.
They also noted that the Massachusetts and North Dakota economies are so different, it would be tough to draw too much of a conclusion for our local economy. Her report helped a legislative commission conclude at the time that a state-owned bank might not be worth the investment, and could be duplicative with existing quasi-public agencies.
But now, Kodrzycki is saying lawmakers should give the idea another look. The times have changed, as have the reasons for exploring the concept.
Instead of forming a bank to insulate the state from cyclical downturns, the motivation today is to address the inadequate access to credit in underserved neighborhoods and municipalities. Much like home ownership, business ownership helps families and communities build wealth over time. Kodrzycki said credit constraints have created astonishing wealth gaps among racial and ethnic groups. A public bank, she argues, could leverage public dollars to unleash the economic potential of these communities, by backing loans that private-sector banks don’t want to touch.
This new state institution, Kodrzycki added, could partner with private banks and community development financial institutions to backstop business loans, or help provide low-cost debt to municipalities that might not qualify for conventional bonds.
The public bank legislation, championed by progressive Democrats Jamie Eldridge in the Senate and Mike Connolly and Nika Elugardo in the House, would set aside $200 million over four years from the state budget to help seed the bank, as well as $1.4 billion in existing deposits from the state’s treasury. The new bank’s 15-plus goals, as spelled out in their legislation, would include helping businesses and cities recover from the pandemic, financing projects that address the risks of global warming, and ensuring state treasury deposits support economic activities within Massachusetts. (A separate public bank bill, filed by Senator Adam Hinds, also includes infrastructure financing in its mission statement.)
Eldridge said his motivations for the state-owned bank concept include helping to finance more affordable housing, and providing more funding for entrepreneurs of color. A public bank, he said, could also help with cannabis banking, a tricky market largely avoided by banks in Massachusetts today. The existing banks, by and large, are more focused on wealthier enclaves, he said, leaving much of the state with comparatively few options for obtaining credit. He said he has been encouraged by all the allies who joined the cause during this two-year session. But will it be enough?
Not if the Massachusetts Bankers Association has anything to say about it.
Kathleen Murphy, the association’s president, had fended off calls for a state-owned bank in Maryland, where she ran a similar trade group before taking the Massachusetts gig in 2020. Now, she is responsible for leading the industry’s charge against the concept here. Proponents say the state-owned bank would be a collaborator, not a competitor, to Murphy’s members. That’s not how Murphy sees it, nor is it how her members view the bill, Murphy said. This public bank would still get a piece of state deposits that would otherwise be set aside at a commercial bank, she said, and it could still end up vying with the private banks for loan clients.
It’s not just that a public bank would be a rival. Murphy agrees with the findings of that decade-old legislative commission: essentially, that this initiative could become a redundant government bureaucracy. Rather than funnel state funds (without FDIC insurance, she’s quick to point out) into a new arm of state government, Murphy said, why not figure out ways to shore up existing quasi-public agencies, such as MassDevelopment or Mass. Growth Capital Corp., to address the real or perceived needs?
These are the questions Feeney and Murphy will confront, possibly as soon as Saturday. Eldridge remains hopeful about winning the committee’s endorsement. But even without it, he plans to push to include his state bank language in the Senate’s version of the economic development bill when it’s ready for debate.
While there’s no way to know if it would survive the inevitable House-Senate horse trading this summer, one thing is certain: This once-radical concept has been pushed out of the fringes and into the mainstream.
Jon Chesto can be reached at [email protected]. Follow him on Twitter @jonchesto.