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Government-Owned, Consumer-Centered Banks Gain Limited Traction, but the Idea Is Alive

January 5, 2024 | 1 minutes reading time | By Dawn Kissi

Although only one U.S. state has opened a public bank, advocates believe the model can benefit localities financially while reaching customers not fully served by private-sector institutions.

Banking crises bring reactions both regulatory – to ensure financial stability and prevent recurrences – and attitudinal. A recent multi-country historical study by Cornell University’s Matthew Baron and two co-authors concluded that the biggest banks, despite outsize risk exposures and losses, “typically gain market share in crises, as small banks fail more often or are absorbed, making the largest banks even more dominant after crises.”

Regional and smaller, community-oriented institutions’ presumably stable balance sheets don’t necessarily bring them more business. Deposits may flow toward “too big to fail” safety or, in another type of backlash, individuals try alternatives such as bitcoin, which was introduced during the 2008 global crisis.

The ebbs and flows of public confidence at times raise interest in public banks – owned by governments and promising to make loans and retain profits for local benefit. The idea rankles the banking establishment, and even in the aftermath of the 2023 bank failures, public banking advocacy remained muted, at least in terms of media attention. But there is a movement behind it that is years...

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Topics: Conduct & Ethics

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