Nichols Cautions Voters on Risks of Public Banks

As voters in Los Angeles prepare to vote on a measure authorizing the city to create a government-run bank, ABA President and CEO Rob Nichols in an op-ed urged them to consider whether the benefits of such an institution would outweigh the risk posed to taxpayers. “A scattered business focus, undue political influence and a lack of oversight” have historically made public banks a risky proposition for taxpayers, Nichols said in the op-ed, published in The Hill.

For example, Nichols pointed out that L.A.’s proposed public bank would not have the FDIC insurance that consumers have come to expect, and could be politically motivated to make risky loans. In addition, a public bank could require higher levels of capital to protect taxpayers, which could “result in reduced lending to the very borrowers the public bank would be intended to serve.”

“The regulated commercial banking sector has a long track record of meeting the needs of small-dollar borrowers, consumer depositors and large-scale enterprises alike,” Nichols said. “From homelessness to education to drug abuse, cities like Los Angeles have huge problems to tackle. Why should voters add to those programs by replacing a system that works with a risky alternative that could leave them holding the bag?”