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California will allow cities and counties to establish public banks under a newly-approved legislation.

On Wednesday, Governor Gavin Newsom signed into law AB 857, the Public Banking Act, which authorizes the lending of public credit and the formation of public banks by local governments.

According to Gov. Newsom, "America should not be held captive by commercial banks and inflated interest rates." He added that the public banks represent "progress."

America should not be held captive by commercial banks and inflated interest rates.

Public banks help communities focus on projects like affordable housing and infrastructure without astronomical profit expectations and pressures from bank shareholders.

This is progress. 👊 https://t.co/pHqut0Zbhr

— Gavin Newsom (@GavinNewsom) October 3, 2019

Under AB 857, the primary purpose of a city and county local governments seeking to open a public bank must be to achieve cost savings, strengthen local economies, support community economic development, and address infrastructure and housing needs for localities.

The law allows a public bank to partner with local financial institutions, such as credit unions and local community banks. It may engage in local agency banking, infrastructure lending, wholesale lending and participation lending. It shall not compete with local financial institutions.

 California Public Banking Act is about “putting people before Wall Street profits”

Assembly members Miguel Santiago and David Chiu co-sponsored the Public Banking Act. A numbers of cities, counties and grassroots organizations support the law.

Santiago noted that Californians have been concerned about the corporate banking system because it doesn’t work for them. He believes that the “Wall Street needs a people-powered competition and a public bank for public good is the right place to start.”

On the other hand, Chiu believes that the public money “should not line the pockets of Wall Street investors. It “should serve a public purpose.

On Wednesday, Chiu tweeted that Gov. Newsom’s approval of the Public Banking Act is a “victory” and it means California is “putting people before Wall Street profits.”

Public Bank LA, one of the supporters of law, thanked Gov. Newsom for signing AB 857 into law.

WE MADE HISTORY. Thank you Governor @GavinNewsom for signing #AB857. Public banking is officially law in California!!!

Activists working together from across the state took on the most powerful industry on the planet- and won. #PeopleOverProfit #MainStreetNotWallStreet pic.twitter.com/0f4ltkAn5O

— Public Bank LA (@publicbankla) October 2, 2019

California is the second state to enact a statewide public banking statute. In 1919, North Dakota formed its public banking because of its belief that farmers were suffering from paying high interest rates. A great majority of North Dakotans (9 of 10) were farmers at the time.