Supporters of establishing a public bank say the entity would collaborate with existing lenders to serve minority entrepreneurs who have difficulty accessing traditional financing. But the state’s banking trade group believes a public bank would offer unfair competition.

Two years into a pandemic that’s highlighted challenges business owners of color face in accessing credit, a group of lawmakers and activists wants to address financing gaps that contribute to racial inequities by establishing a public bank.

A Massachusetts legislative committee is considering a pair of bills that would establish a public bank, a long-sought-after goal for some activists. Only North Dakota currently has a public bank, a century-old institution that supporters point to as evidence that such an entity could work.

Community banks and credit unions would have key roles in the public bank.

“A systemic issue requires systemic address,” said Nia Evans, executive director of the Boston Ujima Project, the nonprofit at the heart of the public bank campaign. “A public bank is not intended to be competitive; it’s not intended to replace any current participant in the ecosystem – I see a public bank as strengthening our ecosystem.”

But the state’s banking trade group, the Massachusetts Bankers Association, has come out against a public bank, saying the entity would be a direct competitor to its 120 members.

“Our members across the board are opposed to this public bank,” said Kathleen Murphy, the MBA’s president and CEO.

Latest in String of Efforts

The current push for a public bank follows several initiatives over the past decade to bring such a lender to Massachusetts.

A commission formed in response to the Great Recession, which included an analysis by the Federal Reserve Bank of Boston, recommended against a public bank, in part because of the need for significant capital.

A few years later, a group of community organizations studied the feasibility of a public bank in response to the racial wealth gap highlighted in the Federal Reserve Bank of Boston’s landmark 2015 report, “The Color of Wealth in Boston,” and other issues related to racial inequities and the effects of gentrification.

While that group again determined that a public bank would be difficult to establish, Evans said, the Boston Ujima Project was formed in response to that study to start building an ecosystem of organizations and institutions that could make a public bank possible in the future.

Bills to create a public bank were filed during that time. Then in 2020, the combination of racial disparities revealed by the pandemic and the death of George Floyd brought about another opportunity to revisit a public bank, Evans said.

The Black Economic Council of Massachusetts brought together a group called the Black Mass. Coalition in 2020 that outlined steps to achieve racial equality, including the establishment of a public bank. In addition to BECMA, the coalition includes the Boston Ujima Project, City Life/Vida Urbana, Families for Justice as Healing, King Boston, North American Indian Center of Boston and Young Abolitionists.

The current public banking bills are supported by another advocacy group that has been working for years on the issue, Massachusetts Public Banking.

The legislature’s Joint Committee on Financial Services continues to consider the pair of bills after extending the date when the committee must make a report on the bills in the current legislative session from early February to the end of April.

The Senate version of the bill, S.665, was sponsored by Acton state Sen. Jamie Eldridge and has nine co-signers. Reps. Mike Connolly of Cambridge and Nika Elugardo of Jamaica Plan sponsored the House version of the bill, H.1223, which has 10 co-signers. The committee is also considering another public bank bill, S.682, filed by Sen. Adam Hinds from Western Massachusetts.

About two dozen organizations support bills S.665 and H.1223, according to Massachusetts Public Banking’s website, including The Boston Foundation, the Local Enterprise Assistance Fund and the New Bedford-based Community Economic Development Center.

‘Very Large Unmet Needs’

The coalition also has academics supporting the bills, including Michael Swack, director of the Center for Impact Finance at the University of New Hampshire Carsey School of Public Policy, and Christine Desan, the Leo Gottlieb Professor of Law at Harvard Law School.

Nadav Orian Peer became involved with the public bank coalition while working on his dissertation with Desan. Orian Peer, now an associate professor at the University of Colorado Law School, helped write the proposed legislation.

“The basic problem that the public bank is trying to make a positive impact on is that we have very large unmet community development needs in the state,” Orian Peer said.

He pointed to research Swack had done that found that community development financial institutions in Massachusetts reported a need for more capital and a desire for more opportunities to cooperate with banks.

The public bank will require less capital than earlier studies suggested would be needed. The bank will be established with $200 million in capital paid in four annual $50 million increments.

The Massachusetts treasurer’s office would then direct $1.4 billion in state funds to the public bank from money currently held in the Massachusetts Municipal Depository Trust. Rather than funds held at banks and needed daily, the MMDT is considered “slow money,” Orian Peer said, used for short-term investments that could be made nationally or even globally.

The $1.4 billion would represent between 10 percent and 20 percent of the MMDT, Orian Peer said, money that would now be used for lending in local Massachusetts communities.

How Existing Banks Fit In

The public bank would not function as a retail bank, Orian Peer said, and would not compete with existing financial institutions.

Instead, community banks and credit unions would have a critical role in the public bank’s lending activities. This could involve cooperative lending opportunities, Orian Peer said, where the lender will originate a loan that the public bank will buy a stake in it, freeing up balance sheet space to allow for banks and credit unions to do more lending.

Lenders will also have opportunities to participate in CDFI loans and act as lenders to CDFIs, Orian Peer said, providing them with low-cost capital that they need.

But for the Massachusetts Bankers Association, the structure and purpose of the public bank would put it in direct competition with banks, Murphy said, because they already provide the same services. She added that while North Dakota does have a public bank, part of its origins included a need for “bankers’ bank” services there, services Massachusetts’ banks already have access to.

Diane McLaughlin

The MBA would prefer to look at improving the partnerships between banks, CDFIs and public and quasi-public agencies, Murphy said.

“Rather than standing something up that will require significant funding to capitalize it and that will put taxpayer money at risk for any loan losses,” she said, “we would be more than welcome to talk with the proponents and policymakers about how to make existing programs work better.”

Evans with the Boston Ujima Project said the idea of a public bank has received some support from local banks, adding that looking at the range of current financial services and communities being served does reveal gaps.

“There for sure are steps current institutions can take to fill those gaps, but they won’t be able to fill all of those gaps for various reasons,” Evans said. “I would hope that a unifying frame is to look at a public bank that can work with currently existing issues to fill in as many gaps as possible today.”