Should There be a Public Option for Banking?

Things are not looking good for European banks or, for that matter, U.S. banks.  Bankers are cutting expenses and laying off workers in droves as their profits go up in smoke.  The bankers got what they wanted years ago—almost all regulations cut.  They ran wild, and it blew up. This has brought the world to the brink of insolvency.  Many banks are going to fail as governments can’t save them all.  One of the things that will likely emerge from the ashes of failed private banks will be public banks.  In this scenario, some banks will be re-engineered to be more like utilities.  They will distribute money for productive uses rather than being private money centers that engage in pure speculation.  Even when banker’s bets went bad, CEO’s were bailed out and paid bonuses in the tens of millions of dollars.  Ellen Brown of has written an excellent post on public banking.  Please read and enjoy.—Greg Hunter–


Public Option Banking

By Ellen Brown Guest Writer for

Publicly-owned banks were instrumental in funding Germany’s “economic miracle” after the devastation of World War II.  Although the German public banks have been targeted in the last decade for takedown by their private competitors, the model remains a viable alternative to the private profiteering being protested on Wall Street today. 

 One of the demands voiced by protesters in the Occupy Wall Street movement is for a “public option” in banking.  What that means was explained by Dr. Michael Hudson, Professor of Economics at the University of Missouri in Kansas City, in an interviewby Paul Jay of the Real News Network on October 6: 

[T]he demand isn’t simply to make a public bank but is to treat the banks generally as a public utility, just as you treat electric companies as a public utility. . . . Just as there was pressure for a public option in health care, there should be a public option in banking.  There should be a government bank that offers credit card rates without punitive 30% interest rates, without penalties, without raising the rate if you don’t pay your electric bill. This is how America got strong in the 19th and early 20th century, by essentially having public infrastructure, just like you’d have roads and bridges. . . . The idea of public infrastructure was to lower the cost of living and to lower the cost of doing business.

We don’t hear much about a public banking option in the United States, but a number of countries already have a resilient public banking sector.  A May 2010 article in The Economist noted that the strong and stable publicly-owned banks of India, China and Brazil helped those countries weather the banking crisis afflicting most of the world in the last few years.

In the U.S., North Dakota is the only state to own its own bank.  It is also the only state that has sported a budget surplus every year since the 2008 credit crisis.  It has the lowest unemployment rate in the country and the lowest default rate on loans.  It also has oil, but so do other states that are not doing so well.  Still, the media tend to attribute North Dakota’s success to its oil fields.

However, there are other Western public banking models that are successful without oil booms.  Europe has a strong public banking sector; and leading it is Germany, with eleven regional public banks and thousands of municipally-owned savings banks.   Germany emerged from World War II with a collapsed economy that had degenerated into barter.  Today it is the largest and most robust economy in the Eurozone.  Manufacturing in Germany contributes 25% of GDP, more than twice that in the UK.  Despite the recession, Germany’s unemployment rate, at 6.8%, is the lowest in 20 years.  Underlying the economy’s strength is its Mittelstand—small to medium sized enterprises—supported by a strong regional banking system that is willing to lend to fund research and development.

In 1999, public banks dominated German domestic lending, with private banks accounting for less than 20% of the market, compared to more than 40% in France, Spain, the Nordic countries, and Benelux.  Since then, Germany’s public banks have come under fire; but local observers say it is due to rivalry from private competitors rather than a sign of real weakness in the sector.

As precedent for a public option in banking, then, the German model deserves a closer look.

From the Ashes of Defeat to World Leader in Manufacturing

Germany emerged Phoenix-like from its disastrous defeat in two world wars to become Europe’s economic powerhouse in the second half of the 20th century.  In 1947, German industrial output was only one-third its 1938 level, and a large percentage of its working-age men were dead.  Less than ten years after the war, people were already talking about the German economic miracle; and twenty years later, its economy was the envy of most of the world.  By 2003, a country half the size of Texas had become the world’s leading exporter, producing high quality automobiles, machinery, electrical equipment, and chemicals.  Only in 2009 was Germany surpassed in exports by China, which has a population of over 1.3 billion to Germany’s 82 million.  In 2010, while much of the world was still reeling from the 2008 financial collapse, Germany reported 3.6% economic growth.

The country’s economic miracle has been attributed to a variety of factors, including debt forgiveness by the Allies, currency reform, the elimination of price controls, and the reduction of tax rates.  But while those factors freed the economy from its shackles, they don’t explain its phenomenal rise from a war-torn battlefield to world leader in manufacturing and trade.

One overlooked key to the country’s economic dynamism is its strong public banking system, which focuses on serving the public interest rather than on maximizing private profits.  After the Second World War, it was the publicly-owned Landesbanks that helped family-run provincial companies get a foothold in world markets. As Peter Dorman describes the Landesbanks in a July 2011 blog:

They are publicly owned entities that rest on top of a pyramid of thousands of municipally owned savings banks. If you add in the specialized publicly owned real estate lenders, about half the total assets of the German banking system are in the public sector. (Another substantial chunk is in cooperative savings banks.) They are key tools of German industrial policy, specializing in loans to the Mittelstand, the small-to-medium size businesses that are at the core of that country’s export engine. Because of the landesbanken, small firms in Germany have as much access to capital as large firms; there are no economies of scale in finance. This also means that workers in the small business sector earn the same wages as those in big corporations, have the same skills and training, and are just as productive. [Emphasis added.] 

The Landesbanks function as “universal banks” operating in all sectors of the financial services market.  All are controlled by state governments and operate as central administrators for the municipally-owned savings banks, or Sparkassen, in their area. 

The Sparkassen were instituted in Germany in the late 18th century as nonprofit organizations to aid the poor. The intent was to help people with low incomes save small sums of money, and to support business start-ups. The first savings bank was set up by academics and philanthropically-minded merchants in Hamburg in 1778, and the first savings bank with a local government guarantor was founded in Goettingen in 1801.  The municipal savings banks were so effective and popular that they spread rapidly, increasing from 630 in 1850 to 2,834 in 1903.  Today the savings banks operate a network of over 15,600 branches and offices and employ over 250,000 people, and they have a strong record of investing wisely in local businesses.

Targeted for Privatization

The reputation and standing of the German public banks were challenged, however, when they emerged as competitors in international markets.  Peter Dorman writes:

[T]he EU doesn’t like the landesbanken. They denounce the explicit and implicit public subsidies that state ownership entails, saying they violate the rules of competition policy. For over a decade they have fought to have the system privatized. In the end, the dispute is simply ideological: if you think that public ownership should only be an exception, narrowly crafted to address specific market failures, you want to see the landesbanken put on the auction block. If you think an economy should be organized to meet socially defined needs, you would want a large part of capital allocation to be responsive to public input, and you’d fight to keep the landesbanken the way they are. (There is a movement afoot in the US to promote public banking.)

The vicissitudes of German banking in the last decade were traced in a July 2011 article by Ralph Niemeyer, editor-in-chief of EUchronicle, titled “Commission’s Dirty Task: WESTLB Devoured by Private Banks.”  He notes that after 1999, the major private banks left the path of sustainable traditional banking to gamble in collateralized debt obligations, credit default swaps, and derivatives.  Private German banks accumulated an estimated €600 billion in toxic assets through their investment banking branches, for which German taxpayers wound up providing guarantees.  Deutsche Bank AG was feeding its record profits almost exclusively through its investment banking division, which made a fortune trading credit default swaps on Greek state obligations.  When this investment turned sour, the German government had to bail out the financial institution into which Deutsche Bank AG dumped these toxic assets.

While the large private banks were betting on the casinos of the financial markets, lending to businesses and the “real” economy was left to the public Sparkassen, which were more efficient in serving average citizens and local business because they were not stock companies that had to satisfy shareholders’ hunger for ever-larger dividends.  Today the market share of private banks in Germany is only 28.4%, and Deutsche Bank AG dominates the segment.  But with its 7% market share, it is still well behind the public banks owned by municipalities and communities.

Neimeyer says the private banks wanted to break up the market dominance of the public banks to get a bigger piece of the pie themselves, and they used the European Commission to do it.  The Commission had been lobbied since the early 1990s by German private banks and by Deutsche Bank AG in particular to attack the German government over the country’s “inflexible” public banking sector.

The IMF, too, had long demanded that any competing public monopolies in the German banking market be broken up, citing their “inefficiencies.”  When the German public Sparkassen and Landesbanken were reluctant to turn to investment banking with its skyrocketing profits, they were branded as bureaucratic and “unsexy.”  When they were pressured to increase their returns for their government owners, the German Landesbanken did get sucked to some extent into derivatives and CDOs (fraudulently rated triple A).  But while they “lost billions in the Goldman Sachs, Deutsche Bank and Lehman Brothers Ponzi scheme,” Niemeyer says the extent to which they became involved in highly speculative transactions was “laughable in comparison with the damage done by private banks, for whom taxpayers are now providing guarantees.”

It was the public banks and Sparkassen that supplied the real economy with liquidity, and that stepped in for the private banks when they withdrew to bet in the financial casino; but it was on the failings of the Landesbanken and Sparkassen that the media focused their attention.  The real motive, says Niemeyer, was that the large private banks wanted the public banks’ market share themselves:


In order to win back this important market share, it has become a prerogative to destroy public banking in Germany completely. This unpopular move could never come from the German government itself, so that’s why the [European] Commission is being employed for this dirty job.

The Price of Success

The German public banks were brought down by knocking their public legs out from under them.  Previously, they had enjoyed state guarantees that allowed them to acquire and lend funds at substantially better rates than private banks were able to do.  But in 2001, the European Commission ruled to strip the Landesbanks of their explicit state credit guarantees, forcing them to compete on the same terms as private banks.  And today the European Banking Authority is refusing to count the banks’ implicit state guarantees in their “stress tests” for banking solvency.

The upshot is that the German public banks are being stripped of what has made them stable, secure, and able to lend at low interest rates: they have had the full faith and credit of the government and the public behind them.  By eliminating the profit motive, focusing on the public interest, and relying on government guarantees, the German public banks were able to turn bank credit into the sort of public utility described by Prof. Hudson.

The example of Germany shows that even success is no guarantee in the face of a relentless onslaught of propaganda by large privately-owned banks interested only in making money for their CEOs, wealthiest clients and shareholders. But peering behind the propaganda, the public banking model that helped underwrite Germany’s economic success might be the fast track to a U.S. banking system that serves Main Street rather than Wall Street.


Ellen Brown is an attorney and president of the Public Banking Institute, In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are and


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  1. Hoppe

    Can you imagine how screwed up and costly a “public bank system” would be in America/ Just imagine what Barney Frank and Chris Dodd could engineer along with the likes of Franklin Raines, if they didn’t have the annoyance of shareholders to deal with.

    North Dakota is probably the worst example for a state run public bank, with it’s mostly WASP population, and frigid climate that discourages transients and retirees.

    We do have a system closer to a public bank than anywhere in the world. It is the credit union. For those not familiar, or not a member, I strongly encourage you to look into joining one and the benefits.

    Government tinkering with banking is what got us into this mess.

    • Brad

      You hit the nail on the head. As I read this article, I could see the grubby fingerprints of Dodd and Frank all over an American attempt at the “public option.” I can see myself as a conservative being denied a loan on trumped up reasons. I am sure they have a file on me already. This is a non-starter.

  2. Frank Rizzo

    This concept seems interesting. I wonder if the Congressmen, mostly which maintain the status quo, would consider something like this.

  3. Steve Hudson

    From Dr. Hudson’s quote: “The idea of public infrastructure was to lower the cost of living and to lower the cost of doing business.”
    Business people should be for this as it will lower their costs. It seems counter-intuitive that a government-run enterprise can lower costs, but that how it works. Providing infrastructure is a role of government. Competition is not everything; cooperation has its place. Banking as it is now is working against the whole economy and is parasitic on it. That can be turned around 180 degrees. North Dakota, Germany, and many other countries are proof.

  4. Dean

    You think there is crony capitalism now, just wait for “public banks”.

  5. Alessandro Machi

    quote from the article…”But peering behind the propaganda, the public banking model that helped underwrite Germany’s economic success might be the fast track to a U.S. banking system that serves Main Street rather than Wall Street.”

    To serve main street instead of wall street, simply change “debt restructuring requires a default”, to, “debt restructuring DOES NOT require a default”.

  6. Clay

    Credit Unions?

  7. me

    Look up what Eric Sprott is doing re: banking up in Canada. Pretty interesting.

  8. Brad

    Hi Greg,
    I read about insolvent European banks, soverign debt, and a likely impending crash beginning with Greece. I am interested in increasing my position in precious metals and would like input from you or your readers. There are those who say that a collapse would drop PM prices as people will need to sell to generate cash, then shortly afterward the price will rocket upward. The conventional wisdom has always been that uncertainty will spike the price. What is your take on the timing of a PM purchase in relation to an acute blow to European economics? Thanks.

    • MasterLuke

      Imagine there are two U.S. dollars in the whole world. I own one and uncle sam owns the other. We are to recieve one U.S. dollar per year for our work. I grow food and uncle sam runs the government. These dollars are backed by the ability of our government to function.

      Uncle Sam decides to invent a printing press that allows him to earn 2 dollars per year for the same amount of work. So the first year we both have 1 dollar each for a total of 2. I use my dollars to pay taxes and uncle same uses his to buy food. Tax per year cost 1 dollar and food cost 1 dollar. Lets say I produce two foods per year.

      So after the first year we make 1 dollar and spend 1 dollar and we each save 0 dollars. After the second year I have zero dollars because the same thing happens but Uncle Sam has 1 dollar but has done nothing besides print an extra dollar. He decides to raise taxes to two dollars per year.

      I am forced to either start charging two dollars for food or sell both my foods and starve. So what do I do? I raise the price of my food. This is inflation. The more money uncle sam prints the more I charge for food.

      So if money is printed or we use our tax money to bail out Europe through a IMF fund you should expect gold and PM’s to continue to rise because everything else constant more supply of fiat currency and the same supply of gold means a higher price for gold/pms.

    • MasterLuke

      As far as certainity goes. I think its pretty certain what will happen to relieve europes debt crisis. What is not certain are the other world problems which are much much larger an issue and may cause people to flee the markets for safer investments.

      • Brad

        HI Luke,
        Thanks for the responses. About bailing out Europe AGAIN–Think FED cash sent to European banks and WWI and WWII–they are seldom grateful for more than a month or two then they forget. I was in a museum in Rome. I asked the price of admission and was asked what country I was from. I told her I was from the US. I was then given a higher price. I told the young lady “We should have left the Nazis here” and we left. In all fairness, there could have been an EU subsidy for the museum, but, nevertheless out of gratitude to us for the blood and treasure spilt on their soil to secure THEIR freedom we should have recieved not just the same price as the locals but a discount!

  9. me

    Also, check out the story on Zero Hedge about Bank of American shifting its derivatives over to an insured part of the bank [eligible for taxpayer bailouts]. They really are zombie banks.

  10. Kevin

    On a localized scale, with competitors and no statist crony mandate, maybe. But I cringe when I read “Economist” and “China” in regards to public banks or large overbearing government institutions for that matter–conjures images of globalists and bureaucrats with a sprinkling of Amtrak and the US Postal Service. And China’s central bank has a lot of tinkering ahead of it before deeming central economic lever pulling in that country a success. Moreover, and key to this issue, is control of the volume of money…the reins on the printing machine. I credit Ellen Brown with first compelling me to peek behind the curtain (read “Web of Debt”), but I believe a free-market, competitive (“eliminating the profit motive” spooks me)sound currency economy is the answer. Regardless, the debate beyond the reserve note is refreshing.

  11. bob D

    hi Greg,

    this is a whopper, a toughie, a gem, and altho the issue is should
    there be private or public or both, banks, what matters is that
    the governments controlling them, today, are suckups who do what
    the banker says rather than keep him honest

    Ponzi looked and saw banks are the top of the line Ponszi-Scheme,
    so all he had to do was copy them and op his game as a quasi bank
    but call it anything else, and so he did, and thus the many madoffs
    are born and bred

    banks are within the realm of USLaw called RICO (racketeer influenced and corrupt organization), a law against crime and criminals and
    altho written well the banks of today have already stopped RICO
    dead in its tracks and made it a plaything of bankers

    so? what to do about getting some juice out of banks, out of
    all banks?

    when a bank, each year, does not make a profit off real banking
    services, usually beefing up via doing commerce which is not banking,
    which is as above called RICO, then the ruling govt should put that
    bank(s) into bankruptcy who would identify operating officers versus workers and fire all operating officers, throw the remains of that
    bank into another bank, any other profitable off banking bank will
    do, retaining the workers at the onset, you have done the right
    thing because you have obeyed natural law where the honest
    survive and the thieves(RICO)go back to herding sheep

    if you leave any defunct bank in business, you are an accessory
    before the fact because the gangsters operating (officers) that bank
    will skip and jump over any legal obstacle and ride only illegal
    behavior because that is where they get the profits and hi salary
    and bonus…

    keep in mind there is no way any govt can or does audit any bank,
    all banks, RICO, keep a dozen sets of books, showing govt one set
    and the officers another set, and a set to take hide deficit yearly
    so now you know why bank-officers always have a sneer on their face,
    except goldman sacs whose officers have painful expressions, they
    hate themselves because they have made the game (RICO) so easy and
    so profitable that they have no fun stealing etc, thus dumpy…

    so as anyone watches the bankers, all necessary for fun is to
    watch what the bankers do::: banking or commerce, one or other or
    both, produce destruction of banking of that group, thus remain
    mere thieves (RICO) who profit off crime

    altho this is similar to government, except bankers deal with the
    big profits, to split among themselves, called wages and bonus etc,
    government does it for love and never are in on the profits of crime
    wages and bonus etc (RICO)

    this is written not so govt will fix banking
    but so the common man
    can be in on the fun of the game
    and see RICO evolve back into nothing

  12. D. Smith

    I’ve been following Ellen’s articles through Global Research e-newsletters for about a year or so now, and always find them to be on point and fascinating. Sometimes I wish she’d delve into other topics and expose nerves in the medical industry and the corporate food industry, too. Maybe at some point she will, huh? Someone with her thoroughness to root out the rats would be well worth the wait.

  13. Bruce Stebbing

    Hi Greg, All the banks in Canada are strong because we have regulations. Buy Canadian bank stocks, resource stocks and others that are doing well. Many companies are still making money. Some companies can’t find enough skilled workers, even with 8 % unemployment. We already know anything unregulated will fail, but governments deregulate anyway. However, we still have not found a way to stop the North American stock market from crashing every 8 to 10 years.
    Forget Europe. The EU will fail soon. Asian countries are leading the world now. I’ve been investing in Brazil, Russia, India and China, (BRIC index funds), other emerging markets, plus resource stocks, gold, health care, etc, that are doing well. It’s not all bad news.

  14. bob D


    it does not do a lot of good when your readers give you
    a reply that is merely wishy washy gobblegook, but i guess
    you have scared off all those who have some meat on their reply
    such that a reader can see the deal instead of looking at
    santa clause all the time DO NOT ANSWER THIS AND DO NOT PUT

    • Brad

      bob—-Where’s the meat in your snarky comment?

  15. C Young

    “The idea of public infrastructure was to lower the cost of living and to lower the cost of doing business.”

    It is amazing that this simple statement represents such profound truth. Locally controlled credit unions are probably a better option in the US given the track record of public institutions falling to corporate interest and failing to protect the public interest.

    • Greg

      C Young,
      Yes, I agree.

  16. George

    “There should be a government bank that offers credit card rates without punitive 30% interest rates, without penalties, without raising the rate if you don’t pay your electric bill.”
    The public utilities do not raise your rates; they cut off your power or gas. The rate is high to cover the possibility of default or late payments. Or if no one pays for their government credit cards do you think the tax payer should. When did credit become a God given right?
    Why would Greg Hunter or I bust our behind working hard when we can sit home and get a share of someone else’s effort? Well, I guess we would not at that but there are enough out there that think it is OK that it would overburden those working. It is just the marginal tax rate. What does the next dollar of income cost you in taxes to earn? There comes a point where the risk is not worth the reward.

  17. Frank Blarny

    Hoppe & Brad, Please go back to watching your FAUX NOIS’ !

    • Brad

      Mr Blarney,
      I don’t watch TV. And what is your point?

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