Publicly Owned Green Banks

A Multi-Purpose Solution

Dependence on fossil fuels has not only damaged the global environment, it has also become a major factor in the devastation of the world economy. Yet transitioning to renewable energy will require a lot of money. Where will it come from? The Wall Street banks and other traditional financial sources are not stepping up to support that objective.

Is there any other solution? Yes! And it comes from an unlikely source – us!

To understand how, it's useful to begin with the ideas put forth by attorney Ellen Brown through her book Web Of Debt and her many articles found on webofdebt.com. Brown is right on target, but in order to realize her goal faster and easier, we’ve added one more element. So let’s see what she proposes and what we would add to her concept.

Ellen’s analysis and solution center around three key ideas:

1. The vast majority of money in circulation comes from loans made by banks (not the government) and the money for those loans is created with accounting entries only.
2. Those banks are corporations who represent their owners and not the public.
3. The government should have the right to create money for society, not just private industry, with the profit going to the benefit of the public. Having the government own banks would satisfy that objective and serve the public’s need.

Why is a government-owned bank significant and what does that have to do with energy and the greening of our economy? The Bank of North Dakota serves as a good model. Facing similar credit conditions to those plaguing the economy today, North Dakota formed its own bank in 1919.

State law requires the state to deposit its revenues in its own bank. Those deposits allow North Dakota to use existing bank lending laws ¹ to create “new money” in the form of loans to itself, businesses, farmers, students and others, and drive its own economy in the direction it chooses. If North Dakota can do it, so can other states and the federal government.

Using Green Banks to Green Our Economy

To achieve the twin goals of getting our economy moving and protecting our environment, green lending is an ideal goal for publicly owned banks, which could provide the financing to help our transition to a renewable energy-based economy.

While getting the requisite legislation passed to enable such banks at the state level is difficult, other solutions exist for county, city and other government entities to particpate, along with the one other institution dedicated to exclusively serving the public good — the non-profit corporation. Under the same rules and systems governing private banks, we can set up publicly owned green banks under non-profit corporations.

But can a non-profit own a green bank?” Yes — just like any for-profit entity. In that case, why hasn’t anyone done it? They have — there is already one in Virginia, another in California and more on the way. Here’s how.

Banks Owned by Non-Profits

Virginia Community Capital (VCC) is a non-profit corporation chartered in 1995. It was transformed in 2005 from a small community development financial institution (CDFI) doing microlending and other loan programs into a wholly owned commercial bank under VCC called Community Capital Bank of Virginia. The bank was initially capitalized by a $15 million grant from the Commonwealth of Virginia, followed by additional support from foundations and others. Its mission is to provide innovative loan and investment solutions for affordable housing and economic development projects throughout Virginia.

In California, the non-profit OneCalifornia Foundation established OneCalifornia Bank, a separate, wholly owned, for-profit corporation set up with millions of dollars in donations from a wealthy couple. Its mission is to “improve economic opportunity for low- to moderate-income communities,” and all profits flow up into the foundation for further benefit to the community.

In Community Capital Bank of Virginia and OneCalifornia Bank (also a CDFI) we see a model for other non-profit owned banks, supported by governments, foundations, wealthy individuals and others.

One good way to blend Ellen Brown’s idea of a government-owned bank with this non-profit approach is for a state to follow Virginia's example and pass a bill allocating the approximate $10 million-$20 million needed to establish such a bank for the public’s benefit, and provide those funds as a grant to a non-profit. This kind of bill would be easier to get through the legislature (even in California) than a bill to establish a state-owned bank. Another approach involves raising the initial capital from charitable foundations, with the state jumpstarting lending by depositing some state funds in the bank.

Another approach to ownership exists that potentially represents the best of the other two approaches, and brings additional benefits. That is achieved through the vehicle of a bank holding company, provided that the bank holding company is formed as a special type of LLC called an L3C.

What would such a bank look like and how could it benefit the country and the environment?

How Green Banks Benefit State and Local Economies

Capital and credit are the two key financial tools of business. Credit shows up on both sides of a business transaction – on the side of the business and on the side of its customers. For example, a solar energy contractor needs some form of trade credit from suppliers; customers usually need some form of financing to purchase solar systems. Thus financing significantly impacts both parties.

Energy dollars (electricity bills and transportation fuels) normally leave a community and are thus unavailable for recirculation within the community. Money that stays within a community has a multiplier effect through repeated use. By funding local renewable energy businesses, green banks help to provide local jobs and reduce outflow of energy dollars outside the community. The more money such green banks pump into the local economy, the healthier the community.