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Banking without banksters

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Bravo to the  Public Banking Institute for suggesting an alternative vision of what banks are and for raising a basic question: what should a bank do, and who should it serve?

I attended the Institute’s recent conference, which drew activists and interested citizens from around the country to San Rafael, California, to hear about public banking and to brainstorm about ways to fund a new economy that creates a sustainable economy for all of us, since current government officials and bankers are doing such a lousy job at it.

The varied presentations included nuts and bolts sessions on the steps involved in developing a plan and pushing for a public bank, reports on worker-owned cooperatives across the country, as well as an eye-opening session on how the government has been  selling off our most gorgeous post offices, many built as part of the federal government’s robust effort to get the country back to work during the Great Depression – the Works Progress Administration.

It’s the lack of any such effort now, either by government or the private sector, that made the public banking conference so key. While it’s fashionable to minimize government’s ability to do anything right, it’s hard to argue with the track record of the Bank of North Dakota, the sole publicly owned bank in the U.S., operating successfully in that state since 1919, when it started with $2 million in capital.The solidly Republican state started its bank as part of a populist wave of anger that swept the state against Wall Street and big city bankers who were denying North Dakota farmers a credit lifeline. Though the state may have turned Republican since then, its residents continue their strong support of their public bank. The state places its revenues from taxes and fees into the bank, which currently holds $2.7 billion in deposits. It has plowed more than $300 million into the state’s economy over the past 10 years, including emergency assistance, state and local government funding and support for small businesses (in partnership with local banks) over the past 10 years, and has enjoyed a 25-26 percent return on equity annually. During that same time, we know what the too big to fail banks were up to – they paid their bankers outrageous bonuses while sinking the economy with risky investments they didn’t understand and relied on taxpayers’ generosity to keep them in business, then improperly foreclosed on millions of homeowners with forged or otherwise fraudulent documents while illegally manipulating the key mortgage interest rate known as LIBOR.

In North Dakota, the public bank makes below-market rate loans to business – but they come with strings attached: every $100,000 in loans must result in the creation of at least one job.

And while the  president and CEO of the Bank of North Dakota earns a handsome living by most people’s standards – $232, 500 a year, it’s a pittance compared to the money lavished on the kings and queens of Wall Street.

North Dakota’s success has attracted attention around the country in the last few years: 20 states are now considering legislation to either enable public banks or study their feasibility.

California, with the eighth largest economy in the world, is a particularly intriguing case. The Public Banking Institute’s Ellen Brown  estimates, based on the Bank of North Dakota’s experience, a California public bank might generate $148 billion in deposits; with a 10 percent reserve requirement, that could generate $133 billion for credit.

In 2011, California’s legislature passed a proposal to establish a commission to study the feasibility of setting up a such legislation a couple of years ago but then-Gov. Brown vetoed it, saying if the Legislature wanted to evaluate public banking, it should do so with its existing resources. Even though both Assembly and Senate passed the measure Gov. Brown vetoed, two years later, California’s Democratic-majority legislature has yet to answer Gov. Brown’s challenge. That might have something to do with the political contributions from the financial industry, which  lavished nearly $78 million to influence state politics last year, according to the National Institute on Money in State Politics. The question we’re going to have to answer is: just how long will stand for private bankers standing in the way of the progress for the common good? If these banks want to gamble with their own money and take the consequences of their losses, that’s one thing. But why should we continue to give them our money? Shame on us if we do, with better alternatives like the Bank of North Dakota staring us in the face.

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