November 28, 2012
The following is a guest editorial by Tim Jorstad. Mr. Jorstad is founder and Chairman of the AltaPacific Bank, a commercial bank located in both Northern and Southern California. This editorial calls for a public bank specifically in the context of Sonoma County, California. Much more information on the public banking movement is available at the Public Banking Institute’s web site.
Systemic risk is endemic to investment portfolios. Managers route the money in those portfolios almost exclusively into publicly traded companies on Wall Street. My clients want a more reliable and less volatile way of managing that risk, but there are currently few options. A public bank would provide an excellent investment vehicle that would allow local investment of money, without tying capital to singular businesses. More importantly, a public bank allows participation in a secondary market if clients feel their bonds are underperforming.
While the JOBS Act signed in April by President Obama has the potential to generate equity capital at the local level, without a secondary market, equity holders may feel stuck once they buy into a company. In contrast, a public bank, issuing a corporate bond, provides an advantage to investors who wish to enter the local investing market and retain an option to get out. The flaw in the JOBS Act is that once you’ve invested in a single company, your options become severely limited. A public bank, on the other hand, gives investors the ability to invest in a region of the country and then have the option of liquidating the investment when desired. This is the way the market should work: Investors should be able to put their money in, and pull their money out, without undue delay, exist cost, or manipulation of bond pricing.
I envision a Sonoma County Bank helping the community, and investors, in two distinct ways. First, Wall Street banks enjoy myriad competitive advantages provided to them by the Federal Government. A county-owned bank can ameliorate some of those advantages. Without taking on additional risk, local community banks can take on deals much bigger than our legal lending limits, in partnership with a county-owned bank. Participants may leverage their deposits at a low cost. This will result in a greater likelihood of profitability, and the retention of the largest customers as they grow. This will give community banks a distinct competitive advantage.
The second main benefit is that a county-owned bank will build a stronger, more diverse economy in Sonoma County. This is critical for us: We want to see our county prosper and grow. With all the talk of austerity, there’s tremendous risk of losing our vision for the future, as we get sucked into a misdirected, austerity-driven race to the bottom. Public banking runs counter to this approach. It can fund loan programs that would typically not be offered by community banks. These could include loan programs for first time farmers, high tech startups, renewable energy, light manufacturing, and more: the real “new economy.”
A public bank is a strong step towards enabling a prosperous future that we can build together, with community banks in partnership with a Sonoma County Bank.