Can We Learn from North Dakota the Value of a Public Bank?

This is the second in a series of article exploring issues that were identified by County Democratic Precinct Persons at the County Platform meeting

There is a publicly owned bank in North Dakota, has been for decades. It did not need a bailout during the 2008 crash because it had not engaged in reckless speculation.

If North Dakota, perhaps one of the more conservative places in the US, can have a public bank, should we? What would it or could it do? And why would we want one?

Apparently there is a national movement to protect public monies from the abuses of Wall St. Remember the Libor scandal or the housing bubble of 2008  to mention just two recent scandals that defrauded billions of dollars in fees from public accounts, including our own local and county governments.

Across the country, community activists, mayors, city council members, and more are waking up to the power and the promise of public banks. Such banks are established and controlled by cities or states, rather than private interests. They collect deposits from government entities — from school districts, from city tax receipts, from state infrastructure funds — and use that money to issue loans and support public priorities. They are led by independent professionals but accountable to elected officials. Public banks are a way to build local wealth and resist the market’s predatory predilections. They are a way to end municipal reliance on Wall Street institutions, with their high fees, their scandal-ridden track records, and their vile investments in private prisons and pipelines. They are a way, at long last, to manage money in the public interest.

All Clackamas County governments and special districts currently pay fees to major banks. When they borrow money, they pay higher interest rates than they get when they deposit tax revenues. This arbitrage is how for-profit banks make their income. A publicly owned bank could either forego much of this revenue stream thus lowering costs for public borrowers or disperse the revenues for needed public projects.

First established in 1919 … to extend credit to cash-strapped farmers and ranchers, the state-owned Bank of North Dakota (BND) is now a modern and multifaceted financial juggernaut. The bank holds deposits from government agencies. It provides low-cost credit for school construction and municipal infrastructure projects. It refinances student debt at reduced interest rates. Rather than opening branches of its own, it generously partners with local community banks and credit unions to issue small-business, home, and agricultural loans. Best of all, it funnels its profits back into state coffers whenever North Dakota has budget troubles. The bank is, in other words, essentially socialist.

It’s also a steady source of profit. Last year, according to its annual report, the Bank of North Dakota saw its 13th consecutive year of record profits, … And, unlike some of its counterparts, the bank accomplished all that without opening fraudulent accounts or manipulating interest rates or otherwise scamming consumers.

The bank’s success — its long track-record of supporting and stabilizing local economies, sharing the wealth, and minting a profit to boot — has turned it into an intriguing model for cities around the country that are keen to find creative fixes for their ongoing financial woes.

Rather than compete with locally owned small banks and credit unions, the Bank of North Dakota partners with them enabling them to stay in business, which is just one reason why ND has a higher percentage of small banks operating today than any other state.

The BND also has entered the housing affordability market by providing finder fees to small local banks who are no longer able to originate mortgages under the new Dodd-Frank regulations.

North Dakota SB 2064, establishing the Mortgage Origination Program, states that the BND may establish a residential mortgage loan program under which the Bank may originate residential mortgages if private sector mortgage loan services are not reasonably available. Under this program a local financial institution or credit union may assist the Bank in taking a loan application, gathering required documents, ordering required legal documents, and maintaining contact with the borrower.

Could a Clackamas County Bank work the same way?

A brief review of just the county government’s borrowing and investments appears to show million of dollars of fees and interest paid to a number of nationally based banks operating in the county. Just imagine if every water district, every sanitary district, every parks and recreation district, the county’s forest land and golf course, not to mention local governments had the ability to save just 2 percent per year on all of their financial transactions.

Agricultural investments (the prime reason for the creation of the BND) are still difficult for many farmers in Clackamas County. Such investments could help stabilize our forests and farmland, maintain the character of our rural communities, and dramatically reduce the county’s carbon pollution by strengthening already growing farm to table programs.