A Better Model: Disaster Relief in North Dakota
That is the state of disaster relief in most parts of the country, but one state has developed a different model -- North Dakota. North Dakota is the only state in the union to have its own state-owned bank. The Bank of North Dakota (BND) has a mandate to serve the public interest, and it has no shareholders other than the state itself. That gives it wide-reaching flexibility in emergencies, allowing it to act quickly to catalyze and coordinate resources.
The BND's emergency capabilities were demonstrated in 1997, when record flooding and fires devastated Grand Forks, North Dakota. The town and its sister city, East Grand Forks on the Minnesota side of the river, lay in ruins. Floodwaters covered virtually the entire city and took weeks to fully recede. Property losses topped $3.5 billion.
The response of the state-owned bank was immediate
and comprehensive, demonstrating a financial flexibility and public generosity
that no privately-owned bank could match. Soon after the floodwaters swept
through Grand Forks, the BND was helping families and businesses recover. Led by then- president and CEO John Hoeven (future North
Dakota governor and U.S. senator), the bank quickly established nearly $70
million in credit lines -- to the city, the state National Guard, the state
Division of Emergency Management, the University of North Dakota in Grand
Forks, and for individuals, businesses and farms. It also launched a Grand
Forks disaster relief loan program and allocated $5 million to help other areas
affected by the spring floods. Local financial institutions matched these
funds, making a total of more than $70 million available.
Besides property damage, flooding swept away many jobs, leaving families without livelihoods. The BND coordinated with the U.S. Department of Education to ensure forbearance on student loans; worked closely with the Federal Housing Administration and Veterans Administration to gain forbearance on federally backed home loans; established a center where people could apply for federal/state housing assistance; and worked with the North Dakota Community Foundation to coordinate a disaster relief fund, for which the bank served as the deposit base. The bank also reduced interest rates on existing Family Farm and Farm Operating programs. Families used these low-interest loans to restructure debt and cover operating losses caused by wet conditions in their fields.
To help finance the disaster recovery, the BND obtained funds at reduced rates from the Federal Home Loan Bank. These savings were then passed on to flood-affected borrowers in the form of lower interest rates.
The city was quickly rebuilt and restored. As a result, Grand Forks lost only 3% of its population between the 1997 floods and 2000, while East Grand Forks, right across the river in Minnesota, lost 17% of its population.
Bringing Real Security to Communities
Just as we can rely on our local public fire department to be there for emergencies, so a public bank can be relied on to lend a true helping hand when private banks, insurers, and FEMA may not. Unlike private insurers that are prone to withdrawing coverage on obscure technicalities, a publicly-owned bank is not beholden to shareholder profit-seeking; and unlike federal disaster relief agencies, a public bank is not dependent on a penny-pinching Congress for funds. Like private banks, it has the ability to create money in the form of bank credit on its books, and it has access to very low interest rates. But private banks have a business model that requires them to take advantage of these low rates to extract as much debt service as the market will bear. A public bank can pass these low rates on to disaster victims and local governments.
When the biggest private banks needed an emergency bailout, trillions of dollars in nearly-interest-free money came flooding their way. Why? As Sen. Dick Durbin said of Congress in 2009, "Wall Street owns the place." The private banking industry also owns all twelve branches of the Federal Reserve. If we the people want the sort of security in emergencies that is available to Wall Street banks, we need to own some banks ourselves.
Just as Occupy Sandy has pre-empted the official rescue agencies through community organizing, so a Public Bank of New York or New Jersey could pre-empt the vulture Wall Street banks and finance the state's own rebuilding. Twenty states have now introduced bills of various sorts to establish their own banks. For more information on the campaign in your state, see here.
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