Converting Failed Banks to Public Banks

In 2023, in response to the failure of Silicon Valley Bank and other large banks, New Consensus released a plan for converting failed banks to public banks.

The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank once again exposed the vulnerabilities and disparities of the U.S. banking system. With a combined total of $532 billion in assets, these failures surpass the inflation-adjusted $526 billion held by the 25 banks that collapsed during the 2008 Global Financial Crisis.

In response to the seismic consequences of these events, and in anticipation of additional bank failures in the future, our white paper proposed a policy for converting failed banks into nonprofit public banks to promote the reality and perception of fairness in the economy, prevent the further concentration of banking, create a more resilient financial system, and promote economic development across all U.S. communities.

Three Main Benefits

This policy would deliver three main benefits to the U.S. banking system and economy:

1. Restoring fairness: Ending the practice of consequence-free government bailouts of wealthy bank shareholders and executives, restoring both the reality and perception of fairness.
2. Preventing concentration: Preventing too-big-to-fail banks from growing even larger, thereby reducing the risk of future bailouts and increasing financial stability.
3. Economic development: Establishing a vibrant public bank sector charged with providing investment capital to support economic development, including re-industrialization, and deliver credit and essential banking services to underserved communities.

Implementation

To implement this policy, new legislation would be required to empower regulatory bodies such as the FDIC and the Federal Reserve to oversee the conversion of failed banks into public institutions. Financing for these conversions will come from new FDIC insurance fees paid by both private and public banks.