California Gov. Gavin Newsom yesterday signed A.B. 857, a bill that provides a pathway for local government entities in the state to charter public banks. Under the law, which takes effect in January, up to two public bank charters per year—subject to an initial cap of 10—could be issued. Any public bank would be required to obtain FDIC insurance to obtain a charter.
The California Bankers Association expressed its disappointment in the law. “Californians are not clamoring for a public bank option,” the association said. “Voter disdain for a public bank option was also validated last November when the voters in Los Angeles soundly rejected the idea. By signing this measure into law, taxpayer dollars have been potentially put at risk, a fact validated by every single public bank feasibility study conducted to date.”
Likewise, the association that represents California’s county treasurers and tax collectors opposed the bill, arguing that depositing local public funds into a newly created bank—as envisioned by the law—would “violate state statute and the public trust.” The American Bankers Association has long questioned the merits of creating new public banking institutions and is watching developments in California closely.