"Hundreds of job-creating projects are still on hold because Michigan businesses and entrepreneurs cannot get bank financing. We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs."
--Lansing Mayor Virg Bernero in the Detroit News, March 9, 2010
Struggling with 14% unemployment, Michigan has been particularly hard hit by the nation's economic downturn. Virg Bernero, mayor of the state's capitol and a leading Democratic candidate for governor, proposes that the state relieve its economic ills by opening a state-owned bank. He says the bank could protect consumers by making low-interest loans to those most in need, including students and small businesses; and could help community banks by buying mortgages off their books and working with them to fund development projects.
Bernero joins a growing list of candidates proposing this sensible solution to their states' fiscal ills. Local economies have collapsed because of the Wall Street credit freeze. To reinvigorate local business, Main Street needs a heavy infusion of credit; and publicly-owned banks could fill that need.
A February posting tracked candidates in five states running on a state-bank platform and one state with a bill pending (Massachusetts). There are now three more bills on the rolls in Washington State, Illinois and Michigan and two more candidates on the list of proponents (joining Bernero is Gaelan Brown of Vermont). That brings the total to seven candidates in as many states (Florida, Oregon, Illinois, California, Washington State, Vermont, and Idaho), including three Democrats, two Greens, one Republican and one Independent.
The Independent, Vermont's Gaelan Brown, says on his website, "Washington DC has lost all moral authority over Vermont." He maintains that:
"Vermont should explore creating a State-owned bank that would work with private VT-based banks, to insulate VT from Wall Street corruption, and to increase investment capital for VT businesses, modeled after the very successful State-owned Bank of North Dakota."
The Bank of North Dakota, currently the nation's only state-owned bank, is the model (with variations) for all the other proposals on the table. The Bank of North Dakota acts as a "bankers' bank," including doing "participation loans" with other banks, allowing them to compete with larger banks. In a participation loan, the community bank originates the loan and takes responsibility for it, while the participating bank contributes funds and shares in the risk and profits. The Bank of North Dakota also makes low-interest loans to students, farmers and businesses; underwrites municipal bonds; and serves as the state's "Mini Fed," providing liquidity and clearing checks for more than 100 banks around the state.
Proposals for publicly-owned banks in other states have now gone beyond the campaign talk of political hopefuls to be drafted into several bills.
The Michigan Development Bank
The Michigan bill has gotten the most press. Introduced into the legislature earlier this month, it mirrors Bernero's state bank idea. According to a press release issued by Senate Democrats on March 9, the bill's aim is to "keep Michigan's money in Michigan" by putting tax dollars into a proposed "Michigan Development Bank". The Bank would function like a traditional bank but would focus on economic development rather than profit. The press release quoted Senator Gretchen Whitmer (D-East Lansing):
"Investing in the state's economy is the greatest way to create jobs, and this proposal will provide small businesses and entrepreneurs the funding they need to invest and grow. Our economy has stagnated due in part to stale thinking in Lansing, and this is just the type of innovative idea we need to create real economic change, using our own money to rebuild the state."
Senate Democratic Leader Mike Prusi (D-Ishpeming) stated:
"Michigan's economy has been suffering, and working families in the state have had difficulty keeping up with credit card bills, college tuition prices and mortgage payments. Establishing the Michigan Development Bank will keep our hard-earned dollars right here in the state to invest in small business, create good-paying jobs to get people back to work, and help protect the middle class."
Also quoted was Senator Hansen Clarke (D-Detroit):
"With the current state of our economy, every dollar counts, yet we're depositing our money in other people's pockets by investing in big corporate banks without seeing much lending in return. It's time for the Mitten State to lend itself a helping hand and establish a bank that is willing to invest in our small businesses and offer the financial support necessary to see job growth."