Legislation to establish NSW’s public bank will require the majority of NSW’s financial assets (estimated at around $150bn), along with all cash and financial assets of Councils (conservatively estimated at $10bn), to be deposited in the Public Bank. In turn, the Bank will pay all dividends to the State of NSW, helping to ensure a healthy State budget.

As of 30 June 2021, the State of NSW had $154.7bn in cash and financial assets. In FY2020-21, the NSW Government paid $44.3m in transaction fees for banking products with Westpac, ANZ and Citi.

The Public Bank would be directly accountable to the Parliament of NSW, not to the Government, and it would have a member-elected Board with a variety of representatives, including worker, union and local council representatives. This will ensure that, no matter the government of the day, the Public Bank of NSW is run for the people.

There is nothing wrong with debt or credit. Allocating money to socially useful activities will usually involve lending of some sort. However, two big problems arise when the lending is done for profit by undemocratic, private institutions.

One problem is that lenders have more of an interest in simply expanding the level of debt so they can make more profit. They become less concerned that the money is allocated to useful activities, or is allocated efficiently.

A second problem is that, as in any profit-driven sector, the lending sector will tend towards oligopoly. The concentrated power of a handful of banks gives them a licence to act with virtual immunity. Indeed, the Royal Commission laid out that the big banks have systematically stolen from the community and have since escaped any meaningful punishment.

As recently as the 1980s, Australia’s household debt to income ratio was about 60%. These days, it is closer to 200%.

Private debt, such as mortgages, has sky-rocketed to compensate for decades of austerity. This has meant massive profits for the big banks through fees and interest. The risk of debts has also been transferred away from the public as a collective, towards individuals and households.

This has played out most obviously in housing. Debt-financing private housing is the tip of the spear – shelter is a fundamental need, and a mortgage is by far the biggest debt most people will ever incur. People are practically forced to take on a huge debt and deal with that risk themselves.

The need for shelter drives the demand for debt. The need for profit drives the supply of debt. The result is a housing bubble.

Figures from the Australian Bureau of Statistics shows the average mortgage on an owner-occupied dwelling in NSW grew by 20.5% through 2021 to hit an all-time high of $779,770.

Even at today’s relatively low interest rates, it is galling that people are effectively forced to pay hundreds of thousands of dollars in interest for the privilege of owing hundreds of thousands of dollars of debt.

Given the typical dwelling price in Sydney of $1.3 million, and assuming the mortgage holder can stump up the 20% deposit, they will be paying at least $500,000 in interest over a 25-year loan.

We commonly hear that housing remains affordable because of relatively low interest rates. However, wage growth is a key factor in affordability. Looking at the size of debts and wage growth, as well as interest rates, gives a better picture of affordability. Using this measure, this graph shows housing in Australia is the most expensive it has ever been.

The twin problems of profit-driven lending and concentrated power come together in mortgages. The Big Four banks control over 80% of home loans in Australia. With that kind of power, the big banks can do pretty much whatever they want.

The scathing Banking Royal Commission proved what we already know – the big banks will always put corporate profits first. In the ten year period to 2018, the Australian banking sector saw more than 60 scandals come to light, exposing corruption, bribery, and mishandling of customer money.

The big banks have too much power over our communities. They have too much control over our housing, over small businesses, and over what infrastructure gets built. By seeking out whatever will make them a profit, rather than what is beneficial for society, the big commercial banks can never be what we need them to be.

With quickly rising inequality and a climate crisis that demands immediate action, we can’t hope that the private sector will turn itself around.

It’s time to take that power back with our own Public Bank.

Public banks: 

• Are owned by the people of a state, city, community, or nation as a public asset
• Serve as the depository for government funds 
• Are required to benefit the public by serving local community needs
• Can save state and local governments money by cutting out middlemen and private shareholders, eliminating fees, and financing projects at lower interest rates
• Reinvest bank profits into the community, providing a new source of income for cities and states and a source of funding for projects 
• Are run by qualified bankers serving a public mission
• Provide accountability and transparency to the public for bank decisions, avoiding the risks of the big banks’ speculative gambling
• Create new jobs by supporting public investment and local small businesses
• Partner with and support non-profit community banks
• Can lend during times of stress and crisis, helping to sustain a healthy local economy

Adapted from the Public Banking Institute

Commonwealth Bank of Australia (until 1991)

• Established by the Commonwealth Bank Act 1911
• Provided essential bank services through both World Wars
• Promoted stability during the Great Depression

Current Australian non-profit banks

• 63 mutuals, cooperatives, building societies and credit unions
• Owned by their member customers
• Over one third of all deposit-taking institutions

Kiwibank (New Zealand)

• Partnered with NZ Post to provide no-frills banking
• Reduces fees across the sector
• Highest customer satisfaction of any major bank in NZ

Den Norske Bank ASA (Norway)

• Norway’s largest financial services group
• Used by almost 40% of the country
• Plans to invest NOK 580 billion for GHG emissions reduction by 2025

Sparkassen-Finanzgruppe (Germany)

• 70% share of lending to small and medium size businesses
• Controlled by democratically accountable municipalities
• Legislated social directive to ensure banking services are available to everyone

United States

• North Dakota public bank has been operating since 1919 and is the most profitable bank in the United States
• California has recently passed enabling legislation for cities and counties to create and sponsor public banks, and more recently passed an additional bill to study the feasibility of public banking
• New Jersey is currently setting up a public bank
• Philadelphia in the process of setting up a public bank (the first in US at a municipality level)
• Public banking has gained renewed attention in the United States in the last couple of years. Rashida Tlaib and AOC are rolling out a plan to help create public banks across the country
• A New Mexico Public Bank is to be considered by legislators in 2022