Who controls your city's money? | Trinity Tran

Modupe Akinola (0:00)

Everyone I know has at one point or another borrowed some money, from a parent, from a sibling, from a partner, from a friend. And sure, this can be a potential risk on a personal and relationship level. That's a whole other podcast episode. But from a business perspective, one of the clear advantages of this type of arrangement is that there's usually no interest or fees. But when it comes to local governments, what options do they have?

We want our money invested locally, not flowing outwards to Wall Street and private lenders, but interest, fees and other contractual stressors. Those are real concerns. What if there was a bank whose only priority was investing in local economic development and not making some far away shareholders happy?

I'm Modupe Akinola. This is TED Business, a podcast from TED. Our speaker today, Economic Justice Advocate Trinity Tran, is here to champion public banks. By lowering the cost of financing itself, Trinity argues that a bank owned by people via their local governments is a way to ensure there's more investment in local infrastructure without the raising of taxes. Then after the talk, we'll hear Trinity speak more about public banking with Lily James Olds, Director of TED Fellows. But first, a quick break.

Trinity Tran (1:36)

When a community wants to build like a bridge or transit system, housing, sustainable infrastructure, where does the money come from? Money ultimately decides what gets built. Money decides what survives. Money decides what future becomes possible. They change where money goes and who controls it, then you change what becomes possible.

I'm Trinity Tran. I lead efforts to build public banks in California and beyond. Most of the time, our cities don't have the money out front to be able to pay for a project like a bridge or housing. And so they will issue a bond, which is essentially a long-term loan provided by, structured by Wall Street banks. A loan is money that is provided up front and paid back over time with interest. Wall Street banks, private lenders, end up tacking on fees to structure and sell those bonds. Then the reality is that our local governments are not only paying for the cost of the project, but decades of interest on top of that. So for every dollar that we're borrowing, we're paying another dollar in interest over time, sometimes more. And that's all money that's going out the door to private lenders. We're paying hundreds of millions of dollars in the city of Los Angeles, at the state level in California. We're paying $4 billion in interest annually. That's money flowing out of our communities rather than being invested locally.

Private banks are owned by shareholders. They're investing in areas that make them a lot of money, and not necessarily what's in the best interest in our communities. Public banking asks a different question. How do we do more with the dollars that our communities generate without raising taxes, but by lowering the cost of financing itself? A public bank is a bank owned by the people through their local government, either city or region or state. Every time you, for instance, buy something like a cup of coffee, a portion of that tax will go to your city and your state. So we're using the money that we already generate that belongs to us. They don't have shareholders to pay, so that as loans are repaid, it comes back into a public bank. Its mission is to support the local economic development of the community it serves. That would be designed at a local level, so the law that we created, the California Public Banking Act, creating the legal framework for cities and municipalities to be able to form their own banks. And so the mission of the bank, the mandates, the lending priorities, the investment priorities, the capitalization strategies, all the details of how this is going to work is going to be defined at a local level.

There are 900 public banks globally with nearly $50 trillion in assets. In Germany, a network of 400 municipal banks was able to support the country's renewable energy transition. In the United States, we have a successful model to emulate. The Bank of North Dakota is a 100-year-old public bank founded in 1919 It was started by socialist farmers who were being gouged by out-of-state New York bankers. During the Great Depression, nearly 200,000 farms were being foreclosed on. Because the state of North Dakota had a public bank, it was able to step in and buy the farms, and lent it back to the families for a dollar. Once the families were able to stabilize, they sold it back at a price they could afford. For the last century, it has supported local economic developments, it has supported small businesses, infrastructure, while still returning very healthy return on equity, 15 to 18%.