AB 857 PUBLIC BANKING ACT - LEGISLATION BRIEF The California state legislature passed AB 857, the Public Banking Act, on September 13, 2019. On October 2, 2019, Governor Gavin Newsom signed AB 857 into law. For the first time in history, California taxpayers’ money can flow back into our local communities, rather than increasing Wall Street shareholder profits. Unlike Wall Street privately-owned banks, which are focused solely on private shareholder returns, public banks will leverage their deposit base and lending power to benefit the communities they serve. These banks will focus on pressing local needs, including affordable housing, small business loans, and public infrastructure projects (such as rebuilding after wildfires and floods), all of which are also fiscally prudent investments. The new law provides a pathway for local governments and joint powers authorities to start public banks. These banks will have the same financial and regulatory requirements as commercial banks. In addition, public banks will be subject to the Brown Act and Public Records Act, thereby ensuring their transparency, good governance, and commitment to the public interest. The legislation requires a local agency sponsor of a public bank to conduct a study, to be presented to the public, and approved by the local agency’s governing body, before the local agency may apply for a banking charter from the California Department of Business Oversight (DBO). Public banks will be organized as a non-profit public benefit or mutual benefit corporations, owned entirely by cities and counties, governed by independent boards of directors, and run by professional bankers. After the Orange County bankruptcy in the mid-1990s, the California Legislature passed laws requiring funds deposited by a local agency to be protected by additional collateral requirements. AB 857 applies these collateral protections to public deposits in a public bank. AB 857 will be implemented as a pilot program, with no more than two licenses to be issued each year, up to a maximum of ten licenses, over a period of seven years, after which time the DBO shall conduct a study on the experience of public banking in the state. The pilot program is intended to demonstrate public banking’s benefits for California’s local communities and local governments. After a successful pilot program, it is intended to make the law permanent so all California communities may benefit from public banks. Public banks will be required to partner with local community banks and credit unions to provide retail services within their jurisdiction, thereby strengthening local financial institutions' capacity to make socially-beneficial loans to the local economy. AB 857 public banks, like credit unions, will be exempt from taxes and, like public agencies, will be subject to the Brown Act and the Public Records Act. Public bank oversight will be conducted at four levels: 1) the independent board of directors of the bank; 2) the local agency owner of the bank; 3) the Department of Business Oversight, and 4) the Federal Deposit Insurance Corporation. CALIFORNIA PUBLIC BANKING ALLIANCE