Alternatives to corporate power: public development banks
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Professor Thomas Marois, the director of the Public Banking Project at McMaster University in Canada, talks to Critical Takes about the huge scale of public development banks around the world. He explains that these banks can offer a more democratic alternative to private investment, as long as they're truly accountable to the communities they're meant to serve.
Unusually these days, the interview ends on an optimistic note.
· Public development banks: a $23 trillion industry with a social purpose (to 05:10).
· PDBs, democracy and “derisking” (to 09:20).
· Examples from Canada, the Netherlands, Germany and Costa Rica (to 13:12).
· How to ensure that public banks really serve the public interest? (to 22:20).
· PDBs, not private capital, have led financing of the energy transition (to 29:24).
· “There is hope.” (To 31:53).
The transcript that follows has been edited for length and clarity.
Diarmid
Hello, this is Critical Takes on Corporate Power and I'm Diarmid O’Sullivan.
If we don't want to rely entirely on private capital to pay for investments in things that society needs, then where is the money to come from? One answer is from publicly owned banks, but how do we ensure that these banks act in a democratic and sustainable way?
I am delighted to be discussing that question with an expert in public banks. Thomas Marois is Professor of Political Economy and Director of the Public Banking Project at McMaster University in Canada. Thanks very much for making time to talk.
So let’s start by defining what we mean. What are public banks and why do they matter?
Thomas Marois
Sure, this is a good question because in many ways public banks are just banks, but they're banks that are owned or controlled publicly. So that can be through ownership, like they can be predominantly owned by a national government or a local authority or even by some other public entity. So some sort of public ownership is one way.
We can also think of public banks as banks that have a legally binding mandate to fulfill some public purpose. So it can be by legal mandate, or by law they can be made public.
And another way we can think about a bank being public is also through governance. So is it governed by political authorities, by some sort of democratically elected member of government that exerts control over the bank?
So a public bank can be made public by ownership, by mandate, or by governance, or some combination of those three, and often it is a combination. But any one of them can really define a bank as being a public bank.
Diarmid
I was struck that public banks as a group are huge. The asset base is something like more than $50 trillion, which is absolutely enormous.
Let's focus on a subset of public banks, which is public development banks, which I understand to mean public banks which have a specific development mandate. Is that right?
Thomas Marois
Yeah, that's correct. So there are more than nine hundred public banks around the world and development banks are a specific type that tend to focus on long-term projects, direct investments into … it can be industry. It can be infrastructure. Often a very common outlet for public development bank investments [is} small and medium-sized enterprises or agriculture.
So they tend to focus on economic and social development. Public commercial banks or retail banks … take deposits and then they do mortgages and loans to persons and to households. But that's not the role of public development banks. They're more focused on the economic and infrastructure side of the economy.
There's more than 500 of them around the world. They're in every corner of the earth and they have about $23 trillion in assets, which is larger than the GDP of the US, for example. So absolutely enormous.
Diarmid
Now we're talking about different sizes of institution, aren't we. There are really big institutions like the World Bank or the regional development banks, but also at the national level, right?
Thomas Marois
You might be surprised, the World Bank is by no means the largest. So if you look at the German KfW, it's a development bank for reconstruction created after the [Second World War] to help rebuild Germany. Its assets are significantly larger than the World Bank’s. I think it's in the range now of close to $600 billion in assets, whereas the World Bank is more in the range of 350 [billion].
The Chinese development banks are triple the size of the World Bank. So national development banks, the largest German, the Chinese, the Indian, the Brazilian are much larger institutions than the World Bank.
They don't have the same kind of global knowledge function, and they don't have that role in multilateral processes that gives the World Bank a disproportionate impact on global development policy and frameworks and so on. But the national development banks, some of them are, are quite large. Much larger than the regional development banks and the World Bank.
But at the same time, there are many smaller ones, like hundreds of smaller development banks at a municipal level, at a regional or a state level, sub-national, and then even at a national level that play, despite being a smaller size, really important roles in local economies and communities supporting everything from small businesses to water infrastructure, to agriculture and and so on. There's an incredible diversity and range of scale among public development banks and they all play an important role in different ways.
Diarmid
Clearly, with balance sheets of that size and with that mandate, public development banks are going to be an important force for economic development.
But as we also know, they can act as the political tools of governments or political tools of the ruling political party. They have often been implementers of neoliberal orthodoxy or enablers of exploitative private investment. They can be a way to shift risk off the balance sheets of private investors and to stick that risk onto public balance sheets. So obviously they can, on the one hand, be very powerful tools for development, or they can also be quite problematic.
Based on what we know, what can we say about the political economy of public development banks and how it affects what they do?
Thomas Marois
That's the big question, isn't it. So starting with the question of their relationship with government, it can vary quite a bit and I'm of the view that there should be a connection between what public banks do and why they do what they do. They need that.
They are in many ways policy takers and they should be seen as a tool of government. But that is different from saying that governments can do whatever they want with them and that there should be no accountability. They should be policy tools of government, but they should also be accountable and be governed in ways that allow for broad-based representation across society so that we can know what they're doing and why.
The most effective and, and frankly, most democratic banks in the world - like the German KFW or an example we have here in Canada of a subnational bank, the Municipal Finance Authority – have elected government representatives on their boards of governors that then give direction to what the bank does and why it does it. And those people are then held to account in their own constituencies.
The problems arise when there's not a clear link of accountability or transparency. So then as in any bank, there's a opportunity for abuse of those really powerful financial resources.
Then the question becomes, well, what is that bank used for? Is it used disproportionately to de-risk or to absorb the risks of the private sector? That's the dominant narrative, the one that's really being pushed currently in multilateral circles. So whereas the World Bank and the IMF were pushing for privatization in the 1990s and the early 2000s, since the global financial crisis it’s much more about “let’s use these public banks to de-risk private investment.” The problem there is that the logic of the public bank becomes that of the private sector: to maximize returns and and profitability for private shareholders and so on.
In many ways and in many levels, including within UN circles and even mainstream economists, de-risking – the World bank's infamous 2015 paper with the IMF on turning billions to trillions, trying to pepper a little bit of public money all over private investments and, and drive of trillions of dollars of investment in the least developed countries - has totally failed. And everybody knows that but they continue to push it.
So my concern has really been around public-public collaboration: looking less at how public banks de-risk private investments than how they collaborate with other public banks and or with public entities like municipalities or essential public infrastructure, water, energy, transportation to really deliver on public policy goals and the Sustainable Development Goals like energy for all, or water for all through collaboration, rather than in a way that's trying to maximize or guarantee the profits of corporations.
So it's really a focus on collaboration and policy versus profit maximization.
Diarmid
And are there examples around the world that you’d cite of that kind of public-public collaboration, where it’s has been successful and not only achieved a social objective, but where it's been responsive to the concerns of citizens and of local communities wherever it was that the project was taking place?
Thomas Marois
Sure, everywhere. It's actually really exciting. I love researching these kinds of things because it runs counter to the whole four or five decades of neoliberal orthodoxy that the only real motivator is to maximize profits and that's the only way you can get things done.
I'm actually, having returned to Canada a couple years ago, digging into this really interesting example: the Municipal Finance Authority of British Columbia, a western province in Canada. It's a subnational bank. It's a bank that's owned by cities for cities, so it's like a cooperative model of a public bank
It’s a public development bank and it has an exclusive right to lend to cities, to municipalities. It has an AAA credit rating, higher than the province of British Columbia, so it gets the cheapest possible rate. Public development banks, when they get financing, typically they borrow from financial markets and then on-lend, and so it's important for them to achieve high credit ratings. There's some problems with that in terms of the political economy of it, but it's a typical model that public development banks borrow in markets and then on-lend to their clients.
So this bank is owned by cities for cities. It lends to cities whatever they need and then they also support other public services like water and public health and so on, giving the cheapest possible rates. It has no profit mandate at all. It does not seek to maximize returns. It seeks to minimize profits, so it keeps its profitability as low as possible to pass those savings on to cities. And it's governed democratically. It’s elected members of cities who sit on the board of governors of this institution.
And I'm making the argument that it's the most economically efficient bank probably in the world, public or private. Last year there were 19 employees handling $10 billion in assets. Like the assets per employee are about 500 million per person, which is out of this world. There’s no other bank in the world that can compare to that, at least no other public bank that I've ever seen. So it's really an very efficient institution that lends money directly to municipalities or cities and to essential infrastructure. And that's its purpose.
And so that's one example, but there are many other around the world. I'll just throw a couple more out there.
In the Netherlands there's the Dutch Water Bank. Its mandate is a bank buying for the public sector. That's all it does. It supports water housing, social housing, infrastructure, green energy. The Council of Europe Bank has an exclusively social mandate. It is a multilateral bank, but it invest in social developments, municipal health, water for low-income or marginalized communities.
The German KfW is the greenest bank in the world, probably, in terms of of greening its lending. The Banco Popular in Costa Rica is the world's most democratic bank governed by 290 members of civil society.
I could go on and on. There are so many examples of really exciting collaborations between publicly-owned financial institutions, public banks and other public banks, but also, communities, the public sector, infrastructure, government and civil society. It’s a really exciting world that nobody knows much about.
Diarmid
What is it that makes these kinds of institutions inefficient? Is it that they're relatively small? The problem of course is that they can become captured by the short-term political priorities of whoever’s in power, which may be electorally driven, or just bad ideas that politicians are in a position to get the bank to finance.
So is there something about the governance of these banks which can reduce the risk of them being captured politically in a way that makes them less efficient?
Thomas Marois
Yeah, and I would not want anybody listening to this interview to think that I've rose-coloured glasses on and that I think that all public banks, for the mere fact that they're public, are good. There are lots of examples of poorly run public banks.
The response is not necessarily to privatise them – that’s never solved anything – but to look at the the way they’re governed and to ask the hard questions of why can these banks be used and abused by those who own and control them, by the government or the governing board.
And so you do need to look at those institutions that have been captured. There are plenty of examples around the world, historically and today, where public banks have been used by governments, politicians to lend to their constituencies or to lend to sectors, to drive through neoliberal policies, even to smooth neoliberal transitions in ways that then lead to a crisis situation for the country because of over-indebtedness.
There's lots of examples. So what I am primarily concerned with is what's to be done about that in terms of the governance. How can we think about country- and region-appropriate forms of governance that can hold those banks and the people who govern them to account?
And so in some cases that can mean a really deep democratic form of representation. Something like the Banco Popular in Costa Rica where the 290 members are selected democratically from ten different social sectors that govern this institution.
It's a deeply democratic institution. That may not be appropriate everywhere but you can look at other institutions where maybe you can expand the governance to include broader sectors of civil society. There are plenty of examples of public development banks around the world that include legislative positions for trade unions for small, medium-sized enterprises with government members on board as well. A range of different civil society actors that can then expose what the bank is doing for whom to their own affected community, to hold that to account.
I think that's really the only way that this can be done, but you do need to look at country-appropriate models. And in different regions of the world, it's more difficult and challenging. And so there's some discussion too around having international representation. So bringing in some representatives from potentially regional development banks or from foreign donor-led governments, or having representatives, for example, where the French development agency might have partial ownership of a national development bank in Africa and then sit on the board, and then that exposes that institution to more global scrutiny for what it does and can militate against any sort of domestic abuse.
So there are many different models of potential governance. They should be appropriate to the society in which the bank exists, but by no means is there any barrier to governing public banks accountably and transparently. It is ultimately a matter of political will, not just of the government, but of society as well.
Diarmid
Absolutely. Of course it's going against the grain certainly of private-sector banking. Banks are quite steep hierarchies and you have board at the top and a chief executive, which is typically recruited from people who sit on the boards of other banks or large companies and it's absolutely not democratic as a type of institution.
So in a way, this approach requires us to rethink what a bank is. The idea of 200-plus people [governing Banco Popular] in Costa Rica: if that body is going to take decisions or provide guidance to the executives of the bank, that's more like a mini-legislature at the top of a bank. And so this invites us to rethink our ideas about what a bank is, not just in term of what it finances, but [also] that it needs to be a flatter hierarchy or it needs in some way to have some elements in it which are more democratic.
I suppose the other question is the mandate, isn't it. [The bank] has to have a long-term mandate so that it doesn't change every time a new government comes to power and wants to change all the projects and spend money on something different. Right?
Thomas Marois
Yeah. There is no avoiding the messiness of history and politics, right? Neoliberals have forever been saying we need to separate the state from the markets and therefore we need to privatize everything to firewall political interference. And we all know that's completely erroneous. I mean.
Diarmid
We're having a very loud, bitter demonstration of that in the UK at the moment with a political scandal about a government minister who it turns out was privately sharing information with [Jeffrey] Epstein about decisions in the bank [sector].
Thomas Marois
Yes, the idea that the free market has separated itself from the state is nonsense. It’s always been an unrealistic idealism of state-market relationships. The reality is, is that governance and politics is a messy business and can change over time. There is no institution that canmake anything immune from those changes and those political dynamics.
What we can do is build stronger democratic processes and accountability and transparent institutions to help militate against any abuse of any institution, be it a bank or be it a water operator, or the metro system in a city. They're all potentially open to abuse. Banks, because they control money, are a special case of that but not entirely unique. It is really about demanding a proper mandate, so there is a baseline to hold those who control the bank to account and then building in processes of accountability and transparency.
But below that, I think it's also vitally important that that institution delivers to its community, it does what it says it's going to do and people trust in that entity and see benefit in it.
I've done a lot of research on the German KFW, the big German development bank that's been around since the 1940s and forever there have been folks in Germany, in European Union arguing for the privatization of that bank. But there's no way that bank would be privatised because it's such a socially credible institution. It predominantly lends to small, medium sized enterprises, which is the backbone of German industry and economy. It’s democratic: it has a 37-member board of governors that has members of parliament on it, but also trade unions, cooperative banks, you know, and and it is just a solid entity. Nobody wants to see it privatized. It really works in the public interest and it's powerful.
So you get things like COVID and the KfW can lean into that crisis and is backed by [Germany’s then-Chancellor] Angela Merkel saying: you can lend without limit, do whatever you need to be done and just pump billions into the economy to save small businesses. To say to students, you don't have to pay back your loans for a couple of years. Don't worry about it. It's a really important legacy institution that works in the [public] interest, by and large. It’s not perfect and there have been problems, but by and large German society sees it as a credible entity
That’s important to the function of any public bank. Is it a public purpose entity? Is it serving the interests of the many? Like in British Columbia: is it serving interests of all municipalities in that province or just the largest ones? And it does. Whether you're the biggest city in that province or the smallest hamlet, everybody gets exactly the same interest rate for loans, no matter whatever you're trying to do, which is an enormous benefit to much smaller, marginalized communities.
So yes, mandate, yes, governance, but fundamentally: is that public bank working in the interests of its community?
Diarmid
Let's finish then by talking about the biggest financing challenge of all, which is of course the climate crisis and the energy transition.
I was just looking earlier at figures from the International Energy Agency for 2025 that although investment in renewables is increasing year on year, more than a trillion dollars a year is still going into fossil fuels.
So there's a gigantic amount of private investment still going into fossil fuels and the assumption that the private sector will lead that transition seems pretty tenuous. Basically it hasn't happened anything like to the extent necessary.
So what do you think is, and what should be the role for public development banks in the energy transition and what might be necessary politically to get them to play that role to the full? I mean from the sounds of it, some of them probably are, but others? Less so.
Thomas Marois
This is something I work on pretty regularly. And I would say to begin with, for at least the last 10 to 15 years, public development banks and public investors in general have been the absolute lead investors in terms of trackable climate finance.
I don't have the figures in front of me right now, but if you look to the Climate Policy Initiative, they're among the best folks who are tracking verifiable climate finance flows. And up until last year, public banks and public investors have significantly outstripped total private investment in trackable climate finance.
Forgive me if I get this wrong, but the numbers I have in mind for their most recent data, from like 2022 or 2023, was that out of the trillion dollars in tracked climate finance, public investors were something like 650 billion [dollars] and private [investors], like, 400 billion, despite the private sector having five times the amount of capital available of the total public investors.
The public sector is significantly outpacing private investment. Last year might have been the first year where private investment topped total public investment in tracked climate finance. I suspect with Trump and the collapse in the Inflation Reduction Act (US President Biden’s public subsidies for green investment], that private investment is going to collapse and public investors will again be the lead investors.
Diarmid
So it's true to say in that case, based on those figures, tthat the energy transition has been primarily financed by public institutions. There is a lot of private investment, but it's smaller.
Thomas Marois
Yes, absolutely.
Diarmid
In other words, that this is to a great extent a publicly funded transition.
Thomas Marois
Yes, I would definitely point in that direction. Obviously China is a huge, huge investor in that role. I would add that we have to be really careful on what those trackers of climate finance call private climate finance. They pull together public investors, governments, public infrastructure. That's fine.
And then there's this big group called privatewhich includes everything from institutional investors to private banks to households. So, yes, households are private, but there's a difference between putting solar panels on your roof or buying a Tesla and BlackRock investing in a solar field in Sub-Saharan Africa or something like that.
Much of what they call private investment is just households. Probably a good third of what is claimed by the private sector is in fact just folks doing energy retrofits, solar panels, or buying a Tesla.
Diarmid
So institutional private investment is a relatively small component then of this enormous investment that's gone into renewables.
Thomas Marois
It's more useful to think of public, household and private. And then if you think of it in that kind of category, you see that the private sector is really not pulling its weight at all. But I think part of the narrative then, or the realization, or the story we have to excavate is really the driving role of communities, which includes households and the public sector, in financing the climate transition.
I want to just pull back a little bit to the public development bank side of it. There's really been a renaissance on the recognition of what public banks can do. So last summer in 2025 was the fourth UN Financing for Development conference held in Sevilla, Spain. It’s a decennial conference: the last one was in 2015 in Addis Ababa which led to the financing for the Sustainable Development Goals commitment.
Via the Sevilla commitments that came out of it, there’s unprecedented language - paragraphs and paragraphs within that commitment - talking about the role of public development banks in supporting green and just transitions and financing that transition.
There is also language around de-risking, of course, it's hard to avoid, but really an unprecedented multilateral commitment to not only have the public banks that they own support the climate transitions, but including specific language around supporting the creation of new public development banks where there's a need to press forward to support Sustainable Development Goals and green just transitions.
So it's really quite a dramatic shift in the narrative and the G-7 French presidency this year has included one of its priorities to help foster a global public development bank ecosystem, which is something we've been working on for the last two or three years.
This is, again, included as a commitment within the Sevilla commitment of 2025 to foster global PDB ecosystem, to have these powerful public banks work better together in collaboration to realize the Sustainable Development Goals, to realize the climate transition.
One final thing I want to make sure is noted and is signaled as important: there are the climate commitments, there is the role of public development banks in energy, but we also really need fresh eyes and deep commitments to biodiversity.
Climate alone is not sufficient. We can progress on climate and destroy biodiversity and screw ourselves anyway. On that, again, the private sector is way behind. The public sector is not doing much better, but at least the world's public development banks are talking about biodiversity and even some have signed on to the draft 2021 Biodiversity Convention and are beginning to integrate questions of biodiversity in their climate finance and broader investments.
Diarmid
I suppose in terms of norm-setting, sometimes for better, sometimes for worse, the World Bank and its International Finance Corporation have actually played quite a lot of role in creating standards for considering biodiversity and so on. How strong or weak those standards are, I can't say, but they've certainly been in that conversation.
Thomas Marois
Yeah, absolutely. The World Bank isn't against fostering this global public development bank ecosystem. They've been supportive of it in different ways, but they’re contradictory institutions. Lots of people study the World Bank but I’m more interested in these national development banks that are a degree closer to democratic accountability.
Diarmid
Yes, I can see why, because of this question of democratic oversight and control. I normally end these interviews by asking people if they feel optimistic, but I think based on what you've said, this makes me feel slightly more optimistic in what is a very gloomy global environment.
Because of the fact that this counter-trend is emerging of recognizing public investment, which is not primarily profit driven, which serves social ends, and from what you’re saying that’s a growing trend and it’s actually having a significant effect.
I mean, the climate crisis seems to be going rapidly out of control, but that to the extent that it is being dealt with, it's these public institutions which are susceptible to democratic control in a way that BlackRock frankly is not.
So I’m coming away slightly more optimistic based on this conversation. Fascinating and deeply informative, thanks for making time to talk.
Thomas Marois
My pleasure. I think it is one of those areas where there is hope: there is a real, actually existing, significant economic capacity still held within the state and still open to having democracy being a part of their decisions. I think that's something that's really important, not only to protect, but to promote.
Diarmid
That's an excellent takeaway message for listeners. There is hope. This is something that we may get a say in. That's fantastic. Thank you very much for making time to talk.
Thomas Marois
My pleasure.
The transcript ends here