This recent article in Fortune magazine makes it clear that most small banks will not survive Dodd-Frank over the next decade - a bill so humongous it needs its own website - unless major changes are made. The 7,000 mostly small banks are literally Too Small to Survive - the equally dangerous corollary to Too Big to Fail. An alternative is Public Banks in every state.

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Bank runs, bankrupt cities, & bailouts! Its time to prepare for the new reality by Press Release Distribution

This recent article in Fortune magazine makes it clear that most small banks will not survive Dodd-Frank over the next decade - a bill so humongous it needs its own website - unless major changes are made. Says Fortune:

Do we need to worry about Too Small to Survive?

"Now that President Obama has been re-elected, analysts, consultants and dealmakers have turned from whether Dodd-Frank will be repealed to what it means for banks now that it's likely here to stay. The overwhelming conclusion: Thousands of small banks will soon disappear."

The 7,000 mostly small banks are literally Too Small to Survive - the equally dangerous corollary to Too Big to Fail.

Now that Obama has been re-elected and Dodd-Frank is certain to survive, in some watered-down form, it's clear that one of the only practical ways to help the banks that serve small businesses, communities, and other "backbones" of America instead of Wall Street, is to backstop them with a Public Bank, along the model of the Bank of North Dakota. 

According to a Massachusetts' study of the Bank of North Dakota from the FRB of Boston:

"About 50 percent of BND's lending derives from participating in or purchasing business loans originated by smaller banks."

And a report by Citizens for a State Bank in Washington (CSBW) says:

"Thanks largely to BND, North Dakota has a more robust community banking network than any other state. It has 35 percent more local banks per capita than South Dakota and four times as many as the U.S. average. Small local banks account for 60 percent of deposits in North Dakota, compared to only 16 percent nationally.

Over the last decade, lending by North Dakota's local banks has averaged about $12,000 per capita (plus about $2,400 in participation lending by BND), compared to just $3,000 for community banks nationally. BND has also enabled local banks to maintain a higher loan-to-asset ratio than their counterparts in other states, which means they devote more of their assets to productive lending, rather than safer holdings like U.S. securities."

Now, the FRB of Boston article says that South and North Dakota are not comparable, because "South Dakota has a very different banking structure: one private bank accounts of over two-thirds of total bank deposits."  But that is not a plus for South Dakota, it's a minus .  What happens to South Dakota if that one private bank with two thirds of total bank deposits runs into trouble?  Will they be bailed out?  Should they be bailed out?

Instead of making small business and personal or student loans - 3/4 of all loans from the BND, according to the FRB study - the TBTF banks are large buyers of safe, albeit low interest, U.S. securities.  This CSBW article goes on to say:

"...take a look at each end of the banking spectrum. On one end are the nation's 6,900 small, locally owned, community banks. These institutions control $1.4 trillion in assets. That's 11 percent of all bank assets. They currently have $257 billion in loans to small businesses and farms on their books.

On the other end, four giant banks--JP Morgan Chase, Bank of America, Citibank, and Wells Fargo--now command $5.4 trillion in assets, or 40 percent of the total. Given that they are nearly four times as large as all local banks combined, one might expect that they would have made four times the small-business loans, or about $1 trillion. In fact, these banks have a mere $85 billion in small-business and farm loans on their balance sheets."

So, instead of making 4 times the loans as the 6900 small locally owned banks, the 4 giant banks have made slightly more than 1/4 as many loans!  That's a lot of 4s, but they're pointing the wrong way!  Instead, we find, from the Office of the Comptroller of the Currency, that JP Morgan alone, has made over $69 Trillion in risky derivative investments, despite having only $1.8 Trillion in assets.  These off-the-books bets are not subject to fractional reserve, or ANY, standard GAAP accounting rules, but they are subject to the results of meltdowns and dried-up markets.  In the Fall of 2007, while everything was unraveling, and even the Fed was accused: "They know nothing!" by CNBC stock promoter/ranter Jim Cramer, it would later be only the Fed that bought the toxic mortgage assets and rescued the banks.  Then, apparently, they knew something, namely that in a market in free-fall, no institution was going to step up and buy the toxic products the member banks had fraudulently peddled, no matter how large the reported assets were.

Since 2008, over 465 small banks have failed , while not one of the 19 TBTF banks has either been allowed to fail or been significantly downsized (they've all lost a large amount of market cap, proving investors are smarter than regulators or Washington politicians, or perhaps just less corruptible).  Wikipedia says: "The 2008 financial crisis led to the failure of a large number of banks in the United States. The Federal Deposit Insurance Corporation (FDIC) closed 465 failed banks from 2008 to 2012. ^{[ 1 ]} In contrast, in the five years prior to 2008, only 10 banks failed. ^{[ 1 ] [ 2 ] "}

Only 10 banks failed in the five years prior to 2008, but 465 banks failed in the four years 2008-2012, and 3 more so far this year (2013).

The Citizen's for a State Bank article goes on to say:

"Why do giant banks make so few small-business loans? Automation is the short answer. The only way these sprawling institutions can function efficiently is by taking a mass production approach to lending: Plug credit score, income, and appraisal into the computer--out comes the loan. That's why the mortgage business was supposed to be so safe. The economic meltdown of 2007 shows that it's actually very risky.

Small-business loans are not so easily mechanized. Each is a custom job, requiring human judgment to evaluate the risk associated with a particular entrepreneur, a particular business plan, and a particular market. Community banks excel at this. Their lending decisions are made locally, informed by face-to-face relationships with borrowers and an intimate understanding of their hometown economies. Big banks, whose decision-making is long-distance and dictated more by computer models than judgment, are pretty bad at it. So they don't make many small-business loans."

This is the way most people still like to think of banks, as some sort of community bank, based on the model made famous in the movie "It's a Wonderful Life" starring Jimmy Stewart.  A bank that makes loans to its neighbors, building a community that in turn provides more business to the bank, in a mutually beneficial cycle.  This is not the way the megabanks work.
The Bank of North Dakota has several programs devoted to Small Businesses:

Beginning Entrepreneur Loan Guarantee Program

This program assists in business start-up financing by providing a financial institution with a guaranty of 75% to 85% depending upon the loan amount. The maximum amount eligible for guaranty is $200,000. Click the following link to find out more about the Beginning Entrepreneur Loan Guarantee Program.

Ag PACE Program - (Agriculture Partnership in Assisting Community Expansion)

The Ag PACE program provides interest buydown on loans to farmers who are investing in nontraditional agricultural activities to supplement farm income. The program funds are used to reduce the interest rate on loans which have been approved by a local lender and BND. The farmer shall have as his principal occupation, prior to applying for the program, the production of agricultural commodities or livestock.

PACE Program - (Partnership in Assisting Community Expansion)

The PACE Fund assists North Dakota communities in expanding their economic base by providing for new job development.

The PACE program has two major elements: (1) the participation by BND with a local lender in a community based loan, and (2) the participation by the PACE Fund with the local community in reducing the borrower's overall interest rate.

The Flex Pace feature of the PACE program provides interest buy down to borrowers that do not fit into the traditional definition of a PACE qualifying business. Under Flex PACE, the community determines eligibility and accountability standards. Flex PACE allows communities the ability to provide assistance to borrowers with a business focus or need outside of the current requirements of PACE, such as jobs retention, technology creation with no new jobs, retail, smaller tourist businesses and essential community services."

Note the size and eligibility requirements of these programs.  They are all designed to help small businesses and entrepreneurs who would otherwise be hard-pressed or even unable to obtain loans any other way.  In contrast, says the American Small Business League, the increasing majority of loans made by the Small Business Administration are made to large businesses, including Home Depot, GE, Johnson and Johnson, etc:

Recipients of Federal Small Business Contracts by American Small Business League

So, on the one hand there are large banks making small amounts of loans to small businesses, and maybe not even to what most people would consider small businesses at all, and on the other hand, the government is corrupting their small business loan program by lending most of their money to big businesses.  This, despite the fact that "98% of all US firms have less than 100 employees."  What is left to support small business?  Only small, community banks, backstopped by a mid-sized State Bank like the BND.

If every state had a State Bank, they would have a proven counter-cyclical alternative in the next financial crisis, like the one that helped North Dakota go through the last crisis as only one of two states with a surplus, continuing to grow.

And the Public Banking model does not only apply to the states.  A local community, or other recognized and stable entity, can form a public bank too.  The Chickasaw nation has it's own Public Bank, though it is more of a hybrid than the BND, being insured by the FDIC, which the BND is not.
From the banks' website:

"Bank2 is a community bank committed to helping people build better lives. We are proud to be rated a 4-Star Bank by BauerFinancial, the most respected independent body rating financial institutions. Bank2 was also recognized by the ABA Banking Journal as the #1 and #3 community bank in the nation in 2009 and 2010 respectively.

Bank2 is a wholly owned subsidiary of the Chickasaw Banc Holding Company. The Holding Company and thus Bank2 are 100% owned by the Chickasaw Nation. We have received state and national recognition through our efforts in Native America, and we are the #1 source of Native American home loans in the state of Oklahoma."

This is a bank of, by, and for, the people...of the Chickasaw Nation.  There is nothing comparable in the private sector.  Of the 12 Native American banks in the country, 8 of them are located in Oklahoma, including Banc2.
The existence of a public bank serving what is normally considered a poor, minority, community, puts the lie to the charge that the BND is only successful because of all the oil and natural gas in North Dakota.  The Chickasaw Nation has a variety of businesses, few of them related to oil and natural gas.  From the Banc2 website:

Whether it's to provide counter-cyclical protection, investments in the local community and support for it, provide public credit from tax dollars, a Public Bank provides a safe, sane, and sustainable alternative to the Too Big to Fail Banks.  It may also be the only way small, community banks don't become Too Small to Survive.

Authors Website: http://newthinking.blogspot.com/

Authors Bio:

Scott Baker is a Managing Editor & The Economics Editor at Opednews, and a former blogger for Huffington Post, Daily Kos, and Global Economic Intersection.

His anthology of updated Opednews articles "America is Not Broke" was published by Tayen Lane Publishing (March, 2015) and may be found here:

http://www.americaisnotbroke.net/

Scott is a former and current President of Common Ground-NY (http://commongroundnyc.org/), a Geoist/Georgist activist group. He has written dozens of articles for Common Ground's national publication, GroundSwell, and has advocated for the Georgist Land Value Tax to public and political audiences.

A complete list of his publications can be found here:

Click Here

He is also New York State Coordinator and Senior Advisor for the Public Banking Institute

Click Here, which seeks to promote Public Banking. The PBI is chaired by another OEN blogger, Ellen Brown.
Scott has appeared on TV/Radio and in in-person Presentations to explain the principles of Georgism, Greenbacking, and State Banking. These may also be found on his personal blog: http://newthinking.blogspot.com/

Scott has a dozen progressive petitions on Change.org which may be found here:

http://chn.ge/10nUAmJ

Scott was an I.T. Manager for a major New York university for over two decades where he earned a Certificate for Frontline Leadership.

He had a video game published in Compute! Magazine: Click Here

Scott is a graduate and adjunct faculty of the Henry George School of Social Science in New York City.

Scott is a modern-day Renaissance Man with interests in economics, science and all future-forward topics.

He has been called an "adept syncretist" by Kirkus Discoveries for his novel, NeitherWorld - a two-volume opus blending Native American myth, archaeological detail, government conspiracy, with a sci-fi flair http://amzn.to/10nUoDV

Scott grew up in New York City and Pennsylvania. He graduated with honors and a Bachelor's degree in Psychology from Pennsylvania State University and was a member of the Psychology honor society PSI CHI.

Today he is an avid bicyclist and ride co-leader in a prominent bike advocacy organization.

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