Definition
The term public bank refers to a financial institution that is owned by a government agency and operated in the public interest. A public bank may be created by any government agency that is willing to comply with local banking requirements.
Explanation
Also referred to as state-owned banks, public banking includes those financial institutions owned by a jurisdiction's citizens and operated by their representative government agencies. The geographic reach of a public bank can range from local branch offices to international operations. There are no additional requirements of a public bank; they need only meet the same requirements as the banks operating in the same geographic regions offering the same services.
While a privately owned bank has an obligation to shareholders to maximize profits, a public bank's primary objective is to provide services to the community it serves. Generally, the profits of a public bank are redirected to a general fund, which can be used to reduce local taxes.
A colony of Quakers located in Pennsylvania was the first to introduce the concept of public banking to the United States. North Dakota is currently the only state to operate a network of public banks. The Bank of North Dakota was originally founded in 1919 to provide farmers and ranchers with affordable credit.