Cheryl Straughter spends at least 12 hours each weekday in the kitchen at her Roxbury restaurant, Soleil, cooking southern classics like shrimp po-boy sandwiches, ribs and fried chicken.
When Straughter, who’s Black, set about opening the restaurant three years ago, she did what a lot of businesspeople do to get off the ground: apply for a loan. But banks refused her requests, saying she didn’t own enough assets that could serve as security for the loan. Ultimately, she cobbled together enough funding through grants from the city of Boston, money from relatives and more than $50,000 of her own savings. Straughter said she felt like a salmon swimming upstream.
"To start in a hole and then to be constantly climbing out — why is my dream of less value than somebody else’s?” Straughter said.
Black and Latino business owners like Straughter are far less likely than their white counterparts to receive loans and debt financing, according to the nonprofit Boston Foundation. To address structural racism and economic disparities, a group of state lawmakers and activists are trying to create a state-owned public bank, using $200 million in federal pandemic relief funds until it becomes self-sufficient.
Advocates say the public bank wouldn’t have to maximize profits for shareholders like private banks, and it could partner with local community banks and credit unions to provide loans at low interest rates.
Currently, only North Dakota has a state-owned public bank. But other states, including New York and California, are also considering public banking — part of a nationwide movement rooted in history. Multiple states had public banks in the 18th century, though they closed as private banks multiplied.
As recently as 2011, after the Great Recession, Massachusetts lawmakers created a commission to consider the feasibility of setting up a public bank to help people access credit. The commission ultimately argued against the idea, and support fizzled out after a report from the Federal Reserve Bank of Boston said it would cost $3.6 billion for Massachusetts to create a public bank similar in size to North Dakota's bank.
The idea has become popular again as the COVID-19 pandemic has highlighted gaps in affordable financing.
“This public bank will make sure that the resources are available not only to the community, but also to financial institutions for partnership and to make sure that they can provide the services to the community members that they are trying to integrate into the broader economy and financial system in Massachusetts,” state Rep. Nika Elugardo said during a recent press conference.
Christine Desan, a professor at Harvard Law School, said in some cases, banks deny loans because people haven’t built up enough credit or haven’t run a business before. Even when people do receive financing, they may have to pay high interest rates or use their home as collateral, meaning if they struggle to pay back the loan, the bank could take their home. Desan said these inequities stem from historic discriminatory practices — like redlining — that have created a racial wealth gap.
“There are many borrowers who don’t fit the metric that makes them an obvious candidate for a loan from a commercial bank,” Desan said. “Those borrowers tend to be shut out even though they would contribute enormously to our economic development as a commonwealth.”
In addition to addressing racial disparities in credit access, the public bank could lend to cannabis growers who struggle to secure loans from banks backed by the Federal Deposit Insurance Corporation. It would also help finance specific city and town projects that don’t receive enough funding right now.
“We’re seeing in the state [a] climate crisis, housing crisis,” said state Sen. Jamie Eldridge, who backs the public bank legislation. “This bill would really provide a boost of support for a lot of important projects that would help the commonwealth as a whole.”
The State House and Senate’s Joint Committee on Financial Services is currently considering the proposal. Supporters want the state to fund the bank with $50 million annually for four years with federal pandemic relief money. Then, the bank would become self-sufficient, like a private bank. Desan said it will be smaller than the public bank considered in 2011 and therefore won't need as much funding from the state.
But in order for the proposal to move forward this time, it must overcome strong opposition from private banks who argue it could be susceptible to political interference. Kathleen Murphy, president of the Massachusetts Bankers Associations, added the bank could end up dragging down Massachusetts' economy.
“Should the loans that this public bank make or [if] in any way this bank becomes insolvent, then the taxpayers of the commonwealth would be on the hook," Murphy said.
The public bank is also unnecessary, Murphy said, because discrimination in lending is illegal and private banks already strive to finance community development projects and small businesses that meet standard criteria. She said she’s concerned the public bank will compete with private lenders.
“We’re picking up the borrowers that they’re not, that they don’t want right now,” Desan, the Harvard professor said. “It’s really hard for me to see this as competition with the banks.”