Public banks are too inefficient to solve and independently displace community banks

Public banks are often touted as ways to remove government deposits from large Wall Street banks. But 53 percent of state and local deposits and 31 percent of federal deposits are held by community banks, meaning public banking would displace locally based community banks. Further, public banking would subject consumers to bureaucratic inefficiencies and public bank executives to political pressures by the elected officials that appoint them. Risky business Neither is public banking a safer place for consumers to park their money. Public banks are likely to be less regulated than private banks because they would not be supervised by a federal banking regulator. And any public bank that forgoes FDIC insurance would be backed by the full faith and credit of a state or municipality, shifting the risk from the bank-funded Deposit Insurance Fund to state and local taxpayers. Further, a cash-strapped state or municipality would provide little support against unexpected losses at the bank, and it could be tempted to draw on the bank's capital cushion.