PHILADELPHIA – HR&A Advisors, a nationally recognized consulting firm, today released a City-commissioned independent feasibility study on the establishment and operation of a public bank in Philadelphia.

HR&A’s study reviews the legal, financial and administrative feasibility of two public banking models: a foundational model and a small business loan model. In the foundational model, the bank established by the City would hold the City’s deposits and operating account funds. The small business model explores how a public bank could then be used as a tool to support small business and job growth in the local economy as a means of reducing poverty, especially for communities of color.

“The HR&A feasibility study is a first step toward the creation of a public bank. As a City, we need new and innovative ideas, like a public bank, to expand Philadelphia’s economic landscape and provide equitable opportunities for everyone,” said Councilmember Derek Green (At-Large). “I look forward to delving further into this discussion and the details of this study in the coming days, as well as working with my Council colleagues and the Kenney Administration toward the creation of a public bank.”

HR&A explores the regulatory changes and financial resources necessary to create a public bank and to enable it to accomplish desired policy outcomes. HR&A found:

  • Establishing a public bank within City government would require changes to the State Constitution, a process which requires approval of identical legislation in two consecutive legislative sessions and an approval vote from the general public, as well as changes to City laws and amendments to the City’s Investment Policy.
  • HR&A recommends instead proceeding through a City-owned authority, which would require state enabling legislation and changes to the City Code to amend certain requirements for City depositories.
  • The bank would be capitalized through the dedication of City funds.
  • The City’s deposits must be sufficiently collateralized at 102% to safeguard taxpayer funds as required by current City policy (and 100% as required by state law). Because of the collateralization requirement, the public bank can only extend loans if it also obtains deposits from other sources.
  • In the foundational model – if the bank does not lend money – HR&A estimates that the public bank would operate at a loss and cost the City money (-0.17%).
  • Based on HR&A’s assumptions, lending public bank funds directly to small businesses would generate a Return On Average Assets (ROAA) of 1.46%.
  • If a public bank provided secondary capital loans at a low interest to mission-driven banks or credit unions to increase those entities lending impact, HR&A estimates that the ROAA would be 1.42%.
  • A public bank that provides services to small businesses either directly or indirectly will require more intensive resources to operate than the foundational model. However, HR&A found that partnering with private or non-profit institutions can reduce the administrative cost and increase impact.
  • HR&A recommended that the governance structure should allow for professional management and subject matter expertise, incorporate best practices in financial management, transparency, equity, and accountability, and require independent audits.

“A public bank would be a significant change for the City. HR&A unpacks these important feasibility considerations for policy makers,” said Acting City Treasurer Jacqueline Dunn. “While the Administration remains neutral on the concept, we look forward to further discussions with City Council on the idea. We particularly appreciate Councilmember Green’s insight and interest in the topic.”

Philadelphia City Council’s Finance Committee will review the study in a public hearing scheduled for Monday, October 5 at 1 p.m.