One legislator who is considering a publicly-owned bank is Bruno Barreiro, County Commissioner for Miami-Dade County in Florida. In a September 23 article titled "Capital Sources: Recession Steers Banks Away from Business as Usual , The Daily Business Review reported that Miami-Dade is planning to conduct a feasibility study proposing alternatives for becoming its own depository. Said the journal:
"Barreiro notes that throughout the year, a portion of the county's $7.5 billion operating budget is deposited with outside financial institutions in return for an interest rate. However, he feels that given the instability of many banks, the county might be better off going into such a business on its own.
Brian Bandell, writing in The South Florida Business Journal on September 11, reported that Barreiro's concern is that bank accounts are insured by the FDIC for only up to $250,000. Some businesses have lost millions of dollars in uninsured deposits when banks failed. The county often has over $50 million in a single account. If the county were to open its own depository institution, it could safeguard against these losses.
However, said Bandell, Barreiro is not proposing to allow the institution to make loans. Rather, the state's money would be invested conservatively in Treasury bonds. The problem with that approach, said Miami banking analyst Kenneth Thomas, is that it would be a challenge to get good interest rates for the county's deposits without making loans. "There's a reason most other municipalities aren't doing it, he said.
In stopping short of making loans, the county could be missing a major business opportunity. The average interest rate on U.S. government bonds is currently 3.35%. If the funds in Miami-Dade's operating budget were deposited in the county's own bank, the money could serve as the reserves to support at least nine times that sum in loans. Assuming an average interest rate of 5% on these loans, the county could increase its revenues by over 1,000% (45% vs. 3.35%). [A fuller explanation and references are here.]
Maximizing the Potential of a Publicly-owned Bank
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