To Have Strong Community Banks, Create Partner Public Banks!
Congress hears why Publicly-owned Banks and Community Banks are natural partners
At the Feb. 5th House Financial Services hearing "Make Community Banking Great Again", MI Representative Rashida Tlaib asked panelists if they knew what unique key driver was behind the greatest community bank state in the nation — the state with the most community banks per capita, best economic stability and bank profits.
I left a long comment to this short video:
Great testimony!
The BND has other pluses too: There have been no major scandals like you see almost continuously in all the major Too-Big-To-Fail commercial banks, like Wells Fargo that sold accounts and services to customers who never asked for them, or JP Morgan which has been fined repeatedly for derivatives violations, or of course, the biggest fraud of all, their complicity in the Housing collapse of 2008-09 where 19 of the TBTF banks had to be bailed out. THAT is what the TBTF banks were doing when the Bank Of North Dakota was busily making loans and keeping North Dakota in the black in those years, unlike EVERY OTHER STATE IN THE UNION! And it's not a one-off either: the Bank of North Dakota has been doing all this since its founding in 1919!
As proof of the close cooperation of the BND with the state's community banks, there's the fact that North Dakota has more of them per capita, as representative Tllaib said. But also consider that many of the loans made by those community banks could not have been made at all without the mini-Fed of the Bank of North Dakota backstopping the risk. North Dakota's growth would have been severely impaired without the BND. It's not just the oil and gas: neighboring states and others have oil and gas too. They also experience boom and bust cycles - oil markets are notoriously cyclical - high foreclosures and poverty.
It doesn't end there. The BND has paid $375 million (2015–2024) directly to the state, its (nearly) only customer. The combination of low overhead, civil service employees, a single headquarters, no advertising, no stockholders, and limited retail front desk operations ensures the bank is run cleanly, inexpensively, and simply. It's president earns about $300k/year. JP Morgan's CEO earns over $20m/year for doing things that mostly don't help the community, like engaging in derivatives trading, private equity deals (which used to often be called Corporate Raiding), currency trading etc. The Bank of North Dakota supports the state with its small businesses and borrowers, period. Yet, the BND had a higher ROE than any of the largest commercial banks, with much less systemic risk. The BND does not need expensive FDIC insurance; it is guaranteed as a Doing Business As (DBA) entity under the laws of the state and has never defaulted or had a bank run - which is impossible since the state cannot have a bank run on itself.
Every state in the union needs a public bank. Every large city could benefit from one too.
The BND is counter-cyclical, supporting the state when other investments tank, even if there is (false) diversification.
There are ample sources of capitalization, including the liquid pension funds - which almost entirely go towards investments on Wall Street (a 10-year study by former NYC Comptroller Scott Stringer found that the ROI over that period, ending in 2015, net of fees, was ZERO (https://comptroller.nyc.gov/newsroom/comptroller-stringer-billions-in-pension-fund-fees-paid-to-wall-street-have-failed-to-provide-value-to-taxpayers/). Pensioners would be far better served by a pay-as-you-go annual fund that included COLAs and could never be threatened when a state or city experienced a recessions. NYC currently has to pay a "topoff" of $6b to make up for poor performance in 2022, over the following 5 years, according to Crain's Magazine). No new taxes or bonds would have to be created in cash-strapped and borrowing limited states and cities (the BND was funded by bonds, which were quickly repaid, but there are other options today).
-Scott Baker, Senior Advisor to the Public Banking Institute.
Very cool! A bit discouraging though that nobody in the House, at least present that day, had heard anything about the BND. We've still got lots of work to do!