Looking for our new site?

The Public Option

The Case for Parallel Public Banking Institutions
  • By Timothy A. Canova, Betty Hutton Williams Professor of International Economic Law, Chapman University School of Law
June 30, 2011 |

For three years, the federal government’s response to the financial crisis has been a parade of bailout programs for the largest banks and financial institutions while providing precious little assistance for everyone else. In the United States and throughout Europe, the strategy has been to inject public funds into the banking system in hopes of restoring private lending to pre-crisis levels.

This is reminiscent of the trickle-down approach of the Hoover administration at the start of the Great Depression, and as in the 1930s, failure to achieve a strong and sustainable recovery should open the door to other alternatives. Previous generations created parallel public banking institutions, at both the federal and state levels, to fill the unmet credit needs stemming from failures in private banking.  In banks that are owned by federal and state governments, there is far greater public accountability in the bank’s oversight, direction, and lending practices than in private institutions. This so-called “public option” in banking has a rich tradition in American history and can serve as a model for reform today.
 

Click here to read the full paper.

 

*This essay has been corrected since its original publication.

Issues: