Once considered unlawful under California state law, a legal opinion by San Francisco Deputy City Attorney Thomas J. Owen says that city-owned banks refutes that unlawfulness. The City of San Francisco has been toying with the prospect of instituting a city-owned bank for about 10 years, City Supervisor John Avalos said in June.

The recent push for the city-owned bank comes from Occupy supporters looking to find a way to come up with a more secure means of banking. However, there has been a bit of concern about how the city will successfully establish the proposal. California Government Code Section 23007 “prohibits a county from giv[ing] or loan[ing] its credit to or in aid of any person or corporation.” And as David Weidner points out, “California law forbids using taxpayer money to make private loans.”

Owen contended, however, that because San Francisco is a “chartered city and county,” meaning that its under its own chartered governance instead of local, state, and federal laws, it isn’t included under Code Section 23007. He further explained, in a June memorandum, that “a court would likely then determine that neither those laws nor the general limitations on expending City funds for a municipal purpose bar the City from establishing a municipal bank.”

Should San Francisco successfully establish a municipal bank, account holders would enjoy more sound financial security as opposed to the Wall Street banks, which lost $100 billion of the California pension fund in 2008. Depositors would also be protected against crookedness and fraud.

Last month, Sacramento County sued Bank of America and other large Wall Street banks for “fraud that has imposed huge losses on local governments in ill-advised interest-rate swaps.” The suit has already resulted in $2.6 billion in settlements from the banks UBS, Barclays, and the Royal Bank of Scotland.

The state-owned Bank of North Dakota has proven that banks operating outside of the network of privatized banks are viable and protect depositors. There has been no risk against the depositors, and the bank has even been linked to the nationwide low unemployment rate, which is 3.2 percent.

Opening a city-owned bank would save the City of San Francisco millions of dollars. Annually, Wall Street banks make about $2.7 million in service fees, two-thirds of which are just transaction fees. Also, because smaller banks and credit unions don’t have the sufficient collateral to protect deposits over $250,000 under the FDIC, San Francisco has to go with the large banks. A city-owned bank could protect the deposits itself, however.

Josh is a writer and researcher with Ring of Fire. Follow him on Twitter @dnJdeli.