elpasospeak

This from Jerry Kurtkya:

EL PASO – AFFORDABLE STEPS TO RENEWAL

# 4 – A Public Sector Piggy Bank

This is hardly a new idea but is one that is gaining traction around the country. Then again, that probably guarantees that it will be another 25 years before it gets any official attention here. I am referring to the idea of establishing a public sector bank to capture the economic benefits of government cash flows and deposits here and keep them local rather than diffusing them to the private banking system that just ships our money off to Wall Street to gamble in the global casino.

I think the idea of a local public sector bank – a Border Bank – was first raised here by Katie Updike, formerly of the Planning Commission. She wrote a detailed report proposing “…a bank which provides the legal, financial and administrative capacity to foundations, banks, donors, non-profits, and governments to fund, administer, and share risk for credit-worthy initiatives in the Mexico US border region.” A very ambitious idea. I want to tone it down a bit and limit the scope to public sector entities, i.e., organizations run by elected officials or chartered by such organizations, e.g., the housing Finance Corporation or the PSB. I think there is a business case for this and little loan risk.

The vision is to create a non-profit banking institution here that will be the repository for public funds of the City, County, school districts, HACEP, EPWU, UMC, HFC, etc. The bank could be chartered either as a Cooperative as defined in the US or a 501(c)(3). It will be a bank where the checking accounts and other depository accounts are held for these local entities. That is a LOT of money but it won’t cost a lot of money to do this because there will be no ATMs or branches or lobbies or drive-ins or marketing expenses. Just a few officers and clerks. The actual operation of the bank, such as IT, item-processing and clearing, can be farmed out to a local bank like GECU as a contractor. Really, the annual loss on the Trolley to Nowhere would probably be enough to start the bank. Of course, there will be a board of directors appointed by elected officials but having to demonstrate some relevant knowledge of finance to sit on the board (i.e., not the UMC board model).

The purpose of the bank will be to consolidate public funds in one institution to save on banking costs and to earn money on the deposits by investing them in public sector instruments, e.g., stadium bonds and QoL bonds and COs of local and other governments and, eventually, become the debt-issuance bank for the local public sector. At least we can pay ourselves interest for all these boondoggles instead of paying the commercial banks! But the public bank will not be a competitor to the commercial banks except in the share of public deposits it holds and services.

Because the bank will not have to fund a distribution system, more of its earnings will flow through and back to its depositors, i.e., us, in the form of interest paid on deposits. Its reserves will be correspondingly lower because it will not be making commercial loans. This model can save as much as 40% of banking costs for local public entities if we can get them all to buy into and designate it as their depository bank. This is just another way to capture the benefits of El Paso’s growth for the public benefit because it will recirculate public money in the region, not out of it.

Quoting again from Updike’s study, “In general financial capacity in a region results in a multiplier of money supply equivalent to the money in the financial enterprise divided by the reserve rate. This multiplier is also affected by how much of the goods and services purchased are from the region, and so on… Most importantly the funding sources will be largely redirected from investment vehicles outside the region, thereby directly impacting monetary resources within the region.”

I hope you are getting the picture, though my proposed bank is a less grandiose vision than that of Updike’s. Still, if successful, it could morph into Updike’s vision to what is known as a community development bank with a larger scope to finance social enterprises in the region, e.g., NGOs like La Fe which help to alleviate poverty and address health and environment, expand funding available to microfinance and community lenders, and stimulate existing non-profits to consider economically sustainable approaches to their missions. Its depositors could also expand to include the local NGOs and other non-profits and foundations whose mission is aligned with the bank.

Think about it.

NEXT – # 5 Thought Leadership or Where Do Ideas Come From Here?