California AB 857: A Comprehensive Guide to Public Banks in the Golden State

Table of Contents#

1. What is California Assembly Bill 857?
2. Core Objectives of AB 857
3. How Public Banks Operate Under AB 857
4. Key Regulatory Requirements & Governance
5. Transformative Benefits for California Communities
6. Challenges & Criticisms
7. Progress Update: Public Banks in California Post-AB 857
8. Conclusion
9. References

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1. What is California Assembly Bill 857?#

Introduced by Assemblymember David Chiu and signed into law by Governor Gavin Newsom on October 2, 2019, California Assembly Bill 857 marked a historic shift in the state’s financial policy. Prior to its passage, California had prohibited public banks since the 19th century, forcing local governments to rely exclusively on private financial institutions for managing public funds.

AB 857 creates a legal framework for local governments (cities, counties, and JPAs) to charter and operate public banks regulated by the California Department of Financial Protection and Innovation (DFPI). The DFPI is prohibited by law from licensing more than two public banks per calendar year and more than ten public banks in total. The bill’s primary goal is to ensure public funds serve the public good rather than private shareholders, addressing longstanding gaps in access to credit for underserved communities.

2. Core Objectives of AB 857#

The legislation is guided by five key priorities that align with California’s most pressing social and economic needs:

• Democratize Public Finance: Shift decision-making about public funds from out-of-state private bank executives to local leaders and community members.
• Expand Access to Affordable Credit: Provide low-interest loans to small businesses, minority-owned enterprises, and affordable housing developers who are often rejected by private banks.
• Advance Environmental Sustainability: Fund green infrastructure projects (e.g., renewable energy installations, electric transit, energy-efficient buildings) to combat climate change and promote environmental justice.
• Reduce Government Costs: Eliminate excessive fees paid to private banks for managing public deposits and lower interest rates on public infrastructure projects.
• Strengthen Local Economies: Keep public dollars circulating within California communities, creating jobs and supporting local businesses instead of sending profits to out-of-state corporations.

3. How Public Banks Operate Under AB 857#

Public banks under AB 857 are government-owned financial institutions that operate differently from private banks. Here’s a breakdown of their core functions:

• Deposit Base: Public banks accept deposits from local government entities (e.g., city treasuries, school districts, county funds) that would otherwise be held in private banks. They do not offer consumer accounts (checking, savings, or credit cards) to individuals, so they do not compete directly with private banks.
• Lending Focus: Instead of using deposits for speculative investments or high-profit corporate loans, public banks lend to local projects that align with community needs. Examples include affordable housing developments, small business expansions, and green energy initiatives.
• Partnerships: Many public banks plan to partner with community development financial institutions (CDFIs) and credit unions to extend their reach to smaller borrowers who may not qualify for traditional bank loans. These partnerships leverage existing local expertise while expanding access to capital.

4. Key Regulatory Requirements & Governance#

AB 857 sets strict safeguards to ensure public banks are financially stable, transparent, and accountable to the communities they serve:

• Chartering: Local governments must apply for a charter from the DFPI, which requires submitting a detailed business plan, financial projections, evidence of community support, and a risk management strategy.
• Capitalization: Minimum initial capital requirements are $10 million for cities or counties and$20 million for JPAs. Funds can come from local government reserves, bonds, grants, or public donations.
• Governance: Public banks are overseen by an independent board of directors with at least five members, including experts in finance, community development, and local government. Board members are appointed by the sponsoring local government and must represent diverse community interests.
• Transparency: Public banks must publish annual independent audits, quarterly reports on lending activities, and hold regular public meetings to gather community input. All financial decisions must be documented and accessible to the public.
• Risk Limits: Public banks are prohibited from engaging in speculative investments (e.g., derivatives, high-risk stocks) and must maintain sufficient capital reserves to protect public funds from losses.

5. Transformative Benefits for California Communities#

Public banks have the potential to address some of California’s most urgent challenges:

• Affordable Housing: By offering low-interest loans to developers, public banks can reduce the cost of building affordable housing. Proponents argue that public banks could significantly expand housing production by offering below-market financing that private banks often decline to provide.
• Small Business Growth: Public banks can provide loans to minority-owned and small businesses that private banks deem too risky. Advocates estimate that public banks could substantially increase small business lending in California by keeping public dollars circulating locally rather than flowing to Wall Street.
• Cost Savings for Governments: Public bank supporters argue that cities and counties could save millions in bank fees and interest costs by managing public deposits through a locally owned institution. In 2020, Oakland alone paid more than $60 million in interest on its loans to private banks.
• Environmental Justice: Public banks can prioritize loans for green projects in low-income neighborhoods disproportionately affected by pollution. For instance, a public bank could fund solar installations in underserved communities, reducing energy bills and cutting greenhouse gas emissions.
• Job Creation: By investing in local businesses and infrastructure, public banks can create jobs. The Public Bank East Bay estimates it could produce 3,800 affordable housing units, 1,000 new worker-owned businesses, and 6 million green megawatt hours within 10 years of launching.

6. Challenges & Criticisms#

While AB 857 offers significant benefits, public banks face several hurdles:

• High Startup Costs: Smaller cities and rural counties may struggle to raise the $10 million minimum capitalization. For example, a rural county with a$50 million annual budget would need to allocate 20% of its reserves to meet the requirement, which may not be feasible without external funding.
• Regulatory Complexity: Navigating the DFPI’s chartering process requires specialized expertise in banking regulation, which many local governments do not have in-house. This can lead to delays and increased costs for hiring consultants.
• Public Perception: Some taxpayers worry that public banks could lose money, leading to higher taxes. However, AB 857’s strict risk management rules and independent audits are designed to mitigate this risk.
• Private Bank Opposition: Traditional banks have lobbied against public banks, arguing they have an unfair advantage due to government ownership. Critics note, however, that AB 857’s ban on consumer accounts limits direct competition.

7. Progress Update: Public Banks in California Post-AB 857#

Since AB 857's passage, several California cities and counties have taken steps toward establishing public banks, though none have yet received a charter:

• Los Angeles: The City Council approved $460,000 in 2023 for a Phase 1 viability study conducted by HR&A Advisors. In 2025, nine City Councilmembers committed their discretionary dollars to fund the ongoing feasibility study, ensuring the work continues. The effort is led by Public Bank LA and the California Public Banking Alliance, with a focus on funding affordable housing, small businesses, and green projects.
• Oakland/East Bay: Oakland is part of the Public Bank East Bay (PBEB) regional effort, which also includes Richmond and Berkeley. PBEB hired its first CEO in 2023 and has a volunteer board working on a business plan. In 2026, Oakland Mayor Barbara Lee indicated a potential ballot measure for November 2026. PBEB's viability study has been approved by Richmond and Oakland.
• San Francisco: In 2022, San Francisco launched a working group of community leaders, bankers, and financial experts. In 2023, the Board of Supervisors unanimously approved business and governance plans for a Municipal Finance Corporation and Public Bank. In 2025, polling showed 67% of likely voters support creating a public bank. In May 2026, Supervisor Chyanne Chen introduced a charter amendment to create a Municipal Financial Corporation and San Francisco Public Bank, which could go before voters in the November 2026 general election.
• Santa Cruz: The Santa Cruz County Board of Supervisors voted to explore a public bank in 2022, with resolutions supporting a Central Coast Public Bank viability study also passed in Monterey and Santa Barbara counties.
• State-Level Developments: In the 2025–2026 legislative session, Assembly Bill 2243 (the State Bank Act) was introduced to create a California state bank. In 2025, the state legislature also approved Phase 1 funding for CalAccount, a zero-fee public transaction account program for unbanked and underbanked Californians.
• Pilot Programs: Some cities have partnered with CDFIs to test public banking-like models while waiting to charter their own banks.

8. Conclusion#

California Assembly Bill 857 represents a bold shift toward community-centered finance, putting public funds to work for the people of the Golden State. While challenges like startup costs and regulatory complexity remain, the potential benefits—from affordable housing to local job growth—are transformative. As of 2026, no public bank has yet received a charter under AB 857, but momentum is building: San Francisco is moving toward a potential ballot measure, Los Angeles is advancing its feasibility study, and the East Bay is developing a regional public bank. With new legislative proposals like AB 2243 and growing public support, Californians may soon see a financial system that prioritizes people over profits, ensuring that every dollar of public money serves the community it came from.

9. References#

1. California Legislature. (2019). Assembly Bill 857. Retrieved from https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB857
2. California Department of Financial Protection and Innovation. (n.d.). Public Banks. Retrieved from https://dfpi.ca.gov/public-banks/
3. Public Banking Institute. (n.d.). California advocates prepare for the final push for the Public Banking Act AB 857. Retrieved from https://publicbankinginstitute.org/california/
4. Public Bank LA. (2025, December 17). 2025 Sees Amazing Progress for the LA Public Bank. Retrieved from https://publicbankla.org/news/a-big-year-for-the-la-public-bank-december-update/
5. KQED. (2025, October 7). San Francisco Public Bank Supporters Eye 2026 Ballot Measure. Retrieved from https://www.kqed.org/news/12058853/san-francisco-public-bank-supporters-eye-2026-ballot-measure
6. Local News Matters. (2026, May 25). San Francisco proposal could create nation's first-of-its-kind municipal public bank. Retrieved from https://localnewsmatters.org/2026/05/25/san-francisco-proposal-could-create-nations-first-of-its-kind-municipal-public-bank/
7. Public Bank East Bay. (n.d.). About. Retrieved from https://www.publicbankeastbay.org/
8. California Public Banking Alliance. (n.d.). AB 857 and Public Bank Information & FAQs. Retrieved from https://capublicbanking.com/wp-content/uploads/2024/02/AB857-FAQs.pdf