The COVID-19 pandemic impacted economies worldwide, with an arduous path to recovery as governments scrambled to repair their economies and support businesses.  

Public banks worldwide stood out as a vital policy tool to help governments and communities, outshining private banks in their capacity to lend into the crisis and to support an equitable recovery. 

Thomas Marois, the Tier 1 Canada Research Chair in Public Banking, has spent most of his academic life researching the impact of public banking on society, and its potential to create a sustainable and inclusive future. 

Marois explains how public banks created a vital lifeline for faltering post-COVID economies, and what that can teach us about the role of public banking in a fragile world. 

What are public banks and how did they help during and after the pandemic? 

Public banks are financial institutions that are located in the public, rather than private, sphere. That means they’re owned or controlled by governments or other public institutions; have a binding public purpose; are governed by state authorities; or have some variation of these factors.  

Unlike private banks, which focus on maximizing profits for shareholders, public banks can be designed to serve the public good. Public banks can be made to follow specific policy objectives and goals set by public authorities to support communities, businesses, and public projects. 

This capacity was very useful during the pandemic. Public banks were able to offer rapid, low or no interest loans to help out struggling businesses, households, students, and institutions that were impacted due to COVID.  

Private banks shied away from offering many of these loans simply because they were too risky; COVID support didn’t meet their risk-return profile. 

That also meant that countries with a robust public banking system in place, like Germany, could direct banks to step in as a matter of policy to provide loans and other financial resources to cities, health-care providers, water providers, and other public sector entities to stay afloat and help combat the pandemic.  

By offering credit, public banks ultimately make time available to individuals, businesses, and institutions so they didn’t immediately go bankrupt. So, by extending credit at a time of crisis, they handed a lifeline to public entities, health-care workers, hospitals, municipalities, and even students (as a lot of public banks put a hold on student loan repayments). 

In many ways, public banks gave people time to find a way through what was an unprecedented, sudden economic shock. Public banks made time available. 

And although public banks helped out immensely during the COVID crisis, they really weren’t celebrated as much as I think they should have been. 

You mentioned Germany; did they have an effective response using public banks? 

It is widely agreed that Germany did a decent job in responding to the economic shock of COVID. A significant factor in the response involved its public banks.  

In particular, Germany has a huge, state-owned, public development bank called the KfW. It was formed in the aftermath of the Second World War as part of the Marshall Plan and efforts to rebuild the country after its infrastructure had largely been destroyed.  

The KfW later played a major role in the drive to reunify the country after the fall of the Berlin Wall. So, in short, the KfW had a history of responding to massive historical shocks.  

So when COVID hit in March 2020, then-Chancellor Angela Merkel was able to turn to the KfW and to direct it to “lend without limit.”  

Merkel could do so without worry as the KfW was backed by the German state, meaning that it could access whatever financial resources it needed to respond to the crisis without threat of going bust.  

The KfW could then provide super cheap financial supports based on its AAA credit rating (which is the same as the German state’s credit rating). 

The KfW rapidly created specific programs to lend money to small, medium and large corporations, municipalities and so on, and just essentially turned on the lending taps to whomever needed it, with a very easy and simplified application process. It offered lots of low interest, long-term loans on favourable conditions.  

Private banks could not or would not offer comparable financing on their own. 

Why do you think that the role of public banks wasn’t as widely celebrated as you thought it should have been? 

Public banks have been trying to function underneath the radar since the 1980s. Over the last 40-plus years the dominant political economic paradigm has been neoliberalism. That is, the ideology that the private sector is best equipped to resolve every type of issue. 

That’s changed significantly since around the time of the 2008 financial crisis, when public banks were able to step in and help many struggling businesses and institutions. 

And then the 2015 Paris Agreement noted that public banks should have a greater role in the response to the climate crisis, to create a more robust, equitable global financial infrastructure to help tackle this enormous issue. 

The way in which the banks have helped in the post-pandemic recovery has really hammered home that they should have a prominent role in the global financial order.  

It’s no stretch to suggest that public banks are essential public infrastructure. 

What does this tell us about the role of public banks in the future? 

Public banks’ effective responses to the global financial crisis, to the global climate crisis, and to the global COVID-19 crisis show that they are well-equipped to deal with these grand challenges in ways that private banks are unwilling or unable to do.  

This is not to say public banks are perfect. They are not. But they have enormous untapped potential to make immediate and meaningful impacts for the good of people and planet.  

We have to seize this moment and create a global public development bank ecosystem, wherein the hundreds of public banks with trillions of dollars in combined assets work together intentionally to tackle global green transitions that are socially just.  

The world is a fragile place. Climate breakdown, increasing conflict, and the lingering concern about the next pandemic threaten societies and economies across the world.  

Public banks can be an economic and even democratic bulwark, if we nurture them in the public interest.