Los Angeles Wants Its Money Back

Americas second-biggest city might take its money out ofWall Street and put it to work at home

- Romy Varghese

When revenue from sales taxes and parking fines comes in, the city of Los Angeles does what every other local government in America does: deposits it in safe, boring bank accounts or invests it in safe, boring short-term securities. The city has about $11 billion deposited with or managed by the country’s biggest banks, which use the capital for their own needs and ultimately their own profit. This arrangement has Los Angeles and some of its more adventurous brethren considering an alternative. Why not create a public bank that would support investment within city limits, backing such things as small-business loans and affordable housing instead of sending the money out?

On Nov. 6, Los Angeles will hold a referendum to ask voters just that. If the answer is yes, the city will amend its charter and become the first U.S. metropolis to take this step toward creating a public bank, giving a big boost to similar campaigns around the country.

The only public bank in the 50 states is Bank of North Dakota. Established in 1919 to support North Dakota’s agriculture industry, it returns profits to the state for reinvestment and works with other financial institutions to stimulate local economies. Outside the 50 states, American Samoa won the Federal Reserve’s approval to tap into its payment system for a public bank earlier this year. The impetus there was pragmatic and urgent: The territory needed a replacement after the commercial Bank of Hawaii said it would close its branches there.