The California Public Banking Act, enacted as Assembly Bill 857 in October 2019, lets cities, counties, and joint powers authorities charter their own nonprofit, publicly owned banks to hold public deposits and finance things like affordable housing, infrastructure, and local economic development. It added Division 5 to Title 5 of the California Government Code and runs the resulting banks through roughly the same regulatory gauntlet as any private commercial bank. No public bank has yet opened under it, but several California jurisdictions are working through the multi-year process.
What the Law Authorizes
The statute defines a public bank as a nonprofit corporation organized for commercial or industrial banking and wholly owned by a local agency, multiple local agencies, or a joint powers authority made up entirely of local agencies.1California Legislative Information. California Government Code 57600 The bank must be structured as either a nonprofit mutual benefit corporation or a nonprofit public benefit corporation under the Corporations Code. It exists to serve its owning government and community, not to generate returns for private shareholders.
Smaller jurisdictions face an extra constraint. A local agency in a county with a population under 250,000 cannot form a public bank on its own; it must do so through a joint powers authority, with population figures based on the most recent estimate from the Department of Finance’s Demographic Research Unit.1California Legislative Information. California Government Code 57600 The idea is to force smaller communities to pool resources rather than stand up undercapitalized institutions alone.
The law also caps how fast public banks can appear. The Commissioner of Financial Protection and Innovation cannot issue more than two public bank licenses in any calendar year, and cannot issue any license that would bring the total number of authorized public banks above ten.2California Legislative Information. California Government Code 57607
How a Local Agency Charters a Public Bank
Governing Body and Voter Approval
Before applying for a charter, the local agency’s governing body must pass an ordinance or resolution authorizing the formation of a public bank.3California Legislative Information. California Assembly Bill 857 – Public Banks For charter cities, that vote is enough. Every other local agency must also put the measure on the ballot and win voter approval, a distinction the DFPI confirmed in its rulemaking documents.4Department of Financial Protection and Innovation. Public Bank Regulations Initial Statement of Reasons This is where many efforts stall. Voter approval demands sustained political will, public education, and a credible answer to the question of where the startup capital will come from.
The Viability Study
With approvals in hand, the local agency must commission an independent viability study before submitting the charter application.3California Legislative Information. California Assembly Bill 857 – Public Banks At minimum, the study must cover a fiscal analysis of startup costs, the initial capital the local agency will provide, and financial projections showing the bank’s expected stability, solvency, and reserves.
The DFPI uses the study to apply the “reasonable promise of successful operation” standard from Financial Code section 1023.5California Legislative Information. California Financial Code 1023 The California Code of Regulations clarifies that the standard is assessed by examining the likelihood that the applicant will actually hit the goals in its own financial projections.6Legal Information Institute. California Code of Regulations Title 10 10.3301.1 – Reasonable Promise of Successful Operation The study also has to explain how the local agency will source and maintain adequate capital, since the DFPI must separately be satisfied that the proposed capital structure is adequate.
The State Charter Application
The local agency then applies to the DFPI for a certificate of authorization, following the same procedure private applicants use when seeking a state bank charter under Financial Code section 1020.7California Legislative Information. California Financial Code – Division 1.1 – Application The filing fee is $5,000.
The DFPI Commissioner evaluates the application against three statutory factors from section 1023: whether the bank will promote “public convenience and advantage,” whether it shows a reasonable promise of successful operation, and whether the proposed capital structure is adequate.5California Legislative Information. California Financial Code 1023 The package must include biographical and financial reports for every proposed officer and director, demonstrating banking experience and professional standing. Successful applicants receive conditional approval, with the final sign-off depending on remaining requirements, most importantly deposit insurance.
FDIC Deposit Insurance
A public bank must obtain FDIC deposit insurance before opening. The DFPI’s guidance and regulatory filings spell this out.8Department of Financial Protection and Innovation. Department of Financial Protection and Innovation – Public Banks FDIC approval is itself a substantial independent review of capital adequacy, management competence, business plan viability, and compliance infrastructure. A public bank that clears the state review still faces a separate federal one.
The Capital Problem
AB 857 does not set a fixed dollar amount for initial capitalization. The capital just has to satisfy the DFPI’s adequacy standard and the FDIC’s expectations. The FDIC also declines to prescribe a universal minimum, evaluating each proposal based on the institution’s market, anticipated size, complexity, and business model.9FDIC. A Handbook for Organizers of De Novo Institutions It does, however, expect every new bank to maintain a tier 1 capital-to-assets leverage ratio of at least 8 percent throughout its first three years, double the 4 percent floor that applies to established banks.
Those requirements translate into real money. A public bank planning to hold $500 million in assets within its first few years would need at least $40 million in tier 1 capital just to meet the ratio, before startup costs, operating losses, or loan loss reserves. San Francisco’s public bank working group estimated roughly $400 million in total initial funding to stand up a fully operational institution in that city. Numbers vary by jurisdiction, but the commitment runs into the tens or hundreds of millions. This is the single biggest obstacle to formation, and the reason most efforts are moving in phases rather than attempting a full bank in one leap.
What a Public Bank Is Allowed to Do
A chartered public bank operates with a narrower scope than a typical commercial bank. The statute authorizes four categories of activity:10California Legislative Information. California Government Code 57604
- Local agency banking: managing deposits and accounts for the government entity that owns the bank.
- Infrastructure lending: financing public works, affordable housing, and similar capital investments.
- Wholesale lending: lending to other financial institutions rather than directly to consumers.
- Participation lending: partnering with local banks and credit unions on loans, sharing risk and expanding access to credit.
Retail banking is restricted. A public bank must conduct retail activities in partnership with local financial institutions and cannot compete with them.10California Legislative Information. California Government Code 57604 One narrow exception: if local financial institutions in the public bank’s jurisdiction do not offer a particular retail service, the public bank may provide that service on its own. The exception is aimed at genuine gaps in underserved communities, not at creating a workaround for building a retail operation.
The collaboration-first design is deliberate. Legislators did not want public banks pulling business from community banks and credit unions. The model treats the public bank as a wholesale partner and backstop, channeling public deposits into local lending through existing institutions.
Governance and Accountability
Because a public bank is wholly owned by the local government, its board of directors is designated by the owning local agency, and board members owe a fiduciary duty to protect taxpayer assets rather than maximize profit.11California State Assembly. Assembly Committee on Banking and Finance Analysis of Assembly Bill 857 Lending and investment decisions must align with the bank’s stated public benefit purpose. The DFPI has adopted regulations specifying that board members and designated alternates represent the local agency at board meetings.12Legal Information Institute. California Code of Regulations Title 10 10.141.1 That structure keeps the bank accountable to elected officials and voters, and it means political turnover can shift leadership and strategic direction in a way private banks largely avoid.
Where Public Banking Efforts Stand
As of early 2026, no public bank has received a charter or opened for business under AB 857. The framework is in place, but capital requirements, regulatory complexity, and political coordination have slowed every effort.
San Francisco has progressed furthest. A city supervisor proposed a ballot measure that would tax financial institutions to raise $40 to $50 million annually for a “Public Bank Fund.” The city’s working group estimated roughly $400 million in initial funding to stand up a full public bank. San Francisco’s plan uses an intermediate step: first a municipal financial corporation that can issue loans but cannot accept deposits, with conversion to a full FDIC-insured public bank targeted for the early 2030s.
Los Angeles, Oakland, and several other jurisdictions have explored public banking to varying degrees, with feasibility studies and task forces at different stages. The pace is slower than advocates hoped, but the phased approach may prove the realistic model: build institutional capacity and political support over several years before attempting the full charter application. Given how long each effort takes to mature, the ten-bank cap and two-per-year licensing limit are unlikely to bind any time soon.