Since 2016, the people of the Standing Rock Sioux reservation have faced off against fossil fuel interests to block the Dakota Access Pipeline, an oil pipeline that threatened to destroy their territory. Developers of the pipeline, bankrolled by some of the largest banks in the nation, relied on “less-than-lethal” water cannons and teargas to violently repress indigenous activists. But even as they fight for climate justice, these activists are inadvertently tied to the destructive fossil fuel projects that they oppose.

Activists, like virtually all individuals, either directly or indirectly participate in a private banking system that works against the climate progress they hope to see. Whether one has funds in banks such as Wells Fargo, JP Morgan Chase, or Bank of America — or simply a retirement portfolio — chances are this money is part of nearly 2 trillion US dollars worth of fossil fuel investments.

For example, in 2017 a coalition of activists in Seattle discovered city assets were held with Wells Fargo, a known funder of many exceptionally destructive oil and gas development projects such as the Dakota Access Pipeline. The coalition successfully pressured the city to seek a transfer of $3 billion in assets to any other bank deemed more “socially responsible.” The city explored its options, only to conclude that there was no existing alternative. Seattle promptly renewed its contract with Wells Fargo. These actions raise a fundamental question: how do governments, from state to local, decouple themselves from private financial investments in extractive practices such as the Dakota Access Pipeline? 

To answer that, it is important to understand how the current private banking system works. For private banks, our money is treated as investment capital. Through the process of deposit loaning, private banks will use governmental deposits (assets and constituent tax revenue) to finance any number of projects. State and municipal government tax revenues and assets held in private banks, like JP Morgan or Wells Fargo, are used to finance fossil fuel interests, such as the $3.7 billion in loans given to the Dakota Access Pipeline. By contrast, any city seeking financial support for public infrastructure projects such as public housing or a green transit system would face significant challenges in securing loans from the very banks where their deposits are held.

Why are private banks more inclined to support fossil fuel projects instead of public infrastructure projects? The simple answer is that private banks, beholden to their shareholders, seek out projects that return higher yields on investments: oil pipelines, for example. This explains why cities face comparatively high interest rates on public infrastructure projects. As the Seattle case study demonstrates, disentanglement from the fossil fuel industry can be a daunting, if not impossible task. 

One potential alternative? Public banking. Though the concept is broad and can take many shapes, public banking is fundamentally defined as a publicly chartered financial institution that exists to support both the needs of individuals as well as the collective interests of the community it serves — without the incentive to turn a profit.

Critics of public banking proposals claim that global privately financed capital is too powerful to overhaul, and that there is not enough financial capital to seed an effective public alternative. How could public banks, which earn their revenue from publicly sourced revenue streams and have no profit motive, possibly compete with the $7.9 trillion in market capitalization that the global banking industry controls? The reality of global finance capital is that $38 trillion (roughly 48% of global GDP) is already publicly held across almost 700 established public banks. The Bank of North Dakota (BND), now the sole public bank in the incorporated United States, empowers 83% of bank deposit activities to be operated by mid-sized banks and credit unions (as compared to an average 29% in the United States). In Costa Rica, the Banco Popular derives its seed funding from a 1.5% wage tax, of which 1.25% is transferred into a workers pension and the remaining funds serve as the democratically controlled bank capital.
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There are also historical precedents for such an approach. As part of the New Deal coming out of the Great Depression, some of the largest economic recovery projects in US history were financed by the publicly owned Reconstruction Finance Corporation (RFC). Founded in 1932, the RFC would go on to provide the current equivalent of roughly $470 billion to economic recovery projects until its dissolution over two and half decades later. If created properly, a public bank can even be efficiently operated and funded by local governments, with final decision-making power resting in democratically elected community representatives. The US Post Office provided a rough model of how this could work from 1911 to 1960, when it provided low interest loans to individuals and serviced 4 million Americans.  

If crafted properly, the creation of a public bank can provide not only a viable means for financing the transition to a cleaner, greener economy, but also hand financial and institutional power directly back to communities and the people. The Bank of North Dakota has successfully supported businesses, agriculture, and student loans at very low interest rates since 1918. In Germany, the nationally owned Kreditanstalt für Wiederaufbau Bank, or KfW, has funded the building and refurbishment of over 4 million energy efficient homes and created over 320,000 jobs per year in the process. Established in 1969, Costa Rica’s Banco Popular is one example of a bank that derives its power from community members. The bank is steered by the Assembly of Working Men and Women, a 290-member assembly required to have 50% female representatives, largely considered to be one of the world’s most democratic decision-making bodies. In a reversal of standard power structures, Banco Popular’s Board of Directors is composed of three government officials and four assembly-members, and derives its power from the elected workers assembly, not the other way around. This format, which includes localized democratic leadership branches for local projects and concerns, demonstrates the potential for any government body to be led by the people, and not by for-profit global finance interests. 

Luckily, the concept of public banking, though still a relatively underexplored option, is gaining steam and even showing up in legislation across the nation. State and local legislative initiatives are pushing to divest public resources from the private system of finance capital. In 2019, after years of activism, California’s Assembly Bill 857 legalized public banking and empowered localities to implement community written and approved bank charters. At the federal level, members of Congress led by Alexandria Ocasio Cortez and Rashida Tlaib (both part of the Democratic Socialists of America) have introduced legislation in the spirit of the Green New Deal. This legislation goes a step further than the California law and explicitly prohibits public banks from investing in and collaborating with the fossil fuel industry. 

Public banking has the potential to make possible truly transformative public infrastructure and social justice projects. A more localized and democratized public banking system would invigorate economic activity and security for the over 40 million Americans who lack access to basic checking, savings, and low interest loan services. Unbanked and underbanked Americans are disproportionately people of color, low-income families, and LGBTQ+. Public banking could free these citizens from the shackles of the predatory payday loan industry while directing tax dollars towards climate friendly projects that reconcile decades of environmental racism and class inequalities — like those that the Sioux at Standing Rock continue to face. As members of the community who are tied directly to the fossil fuel industry through our governments, there is no better time than now to return financial power back to the people.