The Bank of ND does not compete with community banks, but rather partners with them. There is a correlation between this partnering and the fact that North Dakota has the largest number of community banks per capita of all states in the nation. Additionally, the Bank of ND has only one office and no branches, no tellers, and no ATMs that compete with community banks.
This partnering with local community banks means that the Bank of ND does not lend directly to small local businesses, but relies instead on the local community banks to originate those loans. The public state bank can provide funding beyond the deposit base of a small community bank allowing the community bank to finance projects it could not have financed without the partnership. If a local bank had a $5 million limit, and a business wanted $10 million for a new showroom, the bank would have to say no to the loan, forcing the business to go to a Wells Fargo, Citi, JP Morgan Chase or other large Wall Street bank. This results in the loss of business for the community bank. With the public state bank, the community bank could partner on the loan, raising its loan ceiling, retain the money in the community, and provide the services needed.
One very important issue that needs to be raised is that of the safety of the loans being made. It is important to be sure that bank loans are made to people and entities that are truly credit worthy. In North Dakota there is a double check on this process. Any loan that a community bank requests a partnership with would require approval by both the community bank and the state bank officers, since both would be providing the funds. This results in a lower default rate as two sets of eyes are examining and approving the loan.
There are those who may say that a state public bank could be at risk of failure and may need to be bailed out by the taxpayers. This was an issue that created much anger during the 2008 crisis. However, the Bank of ND was properly managed and did not need a bail out and in fact returned a profit of millions that year and every year since then to the state treasury. Politicians on BOTH sides of the aisle in the North Dakota Legislature love and support their state bank! How common is that?
The proper management of the Bank of ND can be attributed to the fact that the officers of the bank receive appropriate salaries (far less than their Wall Street counterparts) and have no bonuses and therefore no incentives to take on excessive risk. The private Wall Street bankers are pressured by their shareholders to return high profits, which often leads to excessive risk taking rather focusing on the economic growth of the state and nation. Some of these investments could possibly be for things the community would not support or would even work against the best interests of their community. The public bank is required by its owners, which would be the people, to invest wisely to promote the economic vitality of the community.
The prosperity created by keeping deposits locally and recycling the fee and interest money locally, would create new jobs, new businesses, fund "wish list" projects, and as a result would raise tax revenue. As more businesses thrive, the tax base and ratables would became larger, which could possibly contribute to tax cuts.
A public bank is not limited to only states. Municipalities and counties could also form their own. There are public banks being considered in New Jersey, Philadelphia, Santa Fe, Vermont, California, Seattle, Los Angeles, Oakland, San Francisco and other places . These public banks have the ability to transform how communities obtain funding. It will keep deposit and interest money circulating locally and out of the hands of Wall Street, thus enabling our local communities to thrive.
I would encourage readers to do their own research and discover how a public bank can tip the balance towards Main Street, rather than Wall Street, and help their small community banks at the same time. A good place to start is with the Public Banking Institute . Perhaps this is a good time to eliminate the Wall Street Tax that you are paying.
On Thursday April 6, 2017 two world-renowned economic thinkers, Michael Hudson and Ellen Brown, came to Franklin & Marshall College in Lancaster, PA to discuss how a public banking option can affect governmental effectiveness. This discussion was moderated by Walt McRee, the chair of the Public Banking Institute. This discussion which was open to the public focused on the key differences between government's unquestioned reliance on private capital markets and how an entirely new, more productive arrangement could be devised. Kudos to Franklin & Marshall College for providing their students and community with such a high caliber seminar. The following video is that discussion.
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