October 03, 2017
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Banking in the Public Interest

Public banking – banking in the public interest – can provide an accessible, sustainable banking industry that remedies the reckless risk taking, inside dealing, and lack of transparency, accountability, and sound corporate governance that drove the failure of the money center, “Too Big To Fail” banks – that failed!  Public banking can generate a sustainable and significant revenue source for cash strapped states, municipalities, and battered taxpayers.  Public banks partner with and support local banks and credit unions, with “participatory lending,” in which the public bank increases total loan size, and guarantees or “buys down” the interest rates of the loans that the private banks originate.

A public bank has only one shareholder to whom it pays dividends – the people of the state or municipality that created it.

America has banks, more than 7,000 local banks and an even larger number of credit unions, the vast majority of which are sound and productive. Action must be taken now to decouple Ameri- can banking from the endemic failures of the money center banks of the Federal Reserve and support the regeneration of community credit and viability.

The public Bank of North Dakota (BND) has been doing all these things and more for the people of that state for almost a century, and helping to sustain a strong and healthy banking industry throughout the state.

In the last six months alone, six states currently have bills pending, three to establish a state-wide publicly owned bank (Washington State, Oregon, Illinois) and three for feasibility studies to explore the possibilities (Virginia, Massachusetts, Hawaii). In Rhode Island, impatient with delays at the state level, municipalities are banding together to form a public bank. Efforts are underway in another dozen states to begin the process of public banking legislation.

The Bank of North Dakota (BND) 

The BND was founded in 1919 to insure a dependable supply of affordable credit for farmers, ranchers and businesses. As of the spring of 2010, North Dakota is the only state sporting a major budget surplus; it has the lowest unemployment and default rates in the country; and it has the most community banks per capita of any state in the U.S.

In 2009, while the U.S. economy was melting down, the BND backed $68 million in FHA andVA mortgages originated by local banks, funded or renewed $472 million in commercial loans for partner banks and institutions (in a more than $1 billion commercial loan portfolio), and financed 268 business and industrial projects.

In the devastating 1997 Grand Forks flood and fire, the BND provided the state with immediate cash for relief until federal disaster funds arrived, underwrote the suspension of mortgage loan payments of those wiped out, and provided more than $100 million in loans to help businesses rebuild. Grand Forks is now one of the top 10 housing markets in the U.S.

Over the last ten years the BND has returned more than a third of a billion dollars to the state’s general fund. The people of the state are getting solid returns on their money. North Dakota has a population of only about 620,000. States with larger populations and tax revenues can anticipate larger returns. 

"The banking crisis shut down lending, destroyed jobs, shuttered banks, and blew holes in public budgets in nearly every state. But not in North Dakota. For 91 years, the state-owned Bank of North Dakota has paired with local banks to put the state’s short-term money—taxes and fees paid by North Dakotans—into productive lending that creates local jobs and local revenue. The Bank also supports North Dakota’s housing and student loan markets.”

—Center for State Innovation (CSI) “Building State Development Banks”

"It is time to declare economic sovereignty from the multinational banks that are responsible for much of our current economic crisis. Every year we ship over a billion dollars in Oregon taxpayer dollars to out-of-state and multinational banks in the form of deposits, only to see that money invested elsewhere. It’s time to put our money to work for Oregonians.”  -- Bill Bradbury, former Oregon Secretary of State and Senate President 

Public banking can provide a new supply of affordable credit that is urgently needed to underwrite sustained economic activity and job creation.

“In 1995, small and mid-sized banks with assets up to $10 billion held 61 percent of all US deposits, today they hold only one-third. The Giant Banks—with over $100B in assets—had just 7 percent of US deposits in 1995, but today hold 44 percent. And despite the fact that small and mid-sized banks possess just 22 percent of all bank assets to- day, they nevertheless make a dramatic 54 percent of all small business loans. (In contrast, the largest 20 banks average $380 billion in assets and yet do just 28 percent of small business lending.) The concentration of financial power is not only dangerous, it also fails to serve the needs of the real economy.” -- Katrina vanden Huevel, The Nation

“Really what separates us [from private banks] is that we plow those deposits back into the state of North Dakota in the form of loans. We invest back into the state in economic development type of activities. We grow our state through that mechanism ... over the last 10, 12 years, we’ve turned back a third of a billion dollars just to the general fund to offset taxes or to aid in funding public sector types of needs.”

Eric Hardmeyer, President, Bank of North Dakota

“Examining the balance sheets of local and giant banks reveals “two en- tirely different types of businesses.” Local banks are still largely engaged in taking deposits and moving money into the community through the likes of mortgages and small business loans, while Giant banks take deposits and engage in speculative trading that privatizes profits, socializes costs, and exacerbates economic inequality.”

Stacy Mitchell, Senior Researcher, New Rules Project

“In the current economy many small businesses—mine included— are struggling to obtain the credit we need...The credit crunch has a ripple effect that impacts everyone in our communities...By reducing our available cash, it also limits the amount we can pur- chase from other small businesses—exactly the kind of economic activity we need...Our communities and small businesses would benefit greatly from a state bank like North Dakota’s.This is exactly what small businesses in Oregon need: a focus on building our communities, so everyone can benefit.”

—Bill Allegri, co-owner of Allegri Wine Shop & Art Gallery, OregonLive.