Commentary: Suppose, in 1919, New Mexico, a cattle-raising state being taken advantage of by large cattle-dealers and big eastern banks, had formed its own state bank?
In agricultural North Dakota, a populist wave established the Bank of North Dakota (BND) to protect farmers from powerful out-of-state grain brokers, railroad tycoons, and private bankers. Through changing times, BND has fulfilled its mission to "promote agriculture, commerce, and industry," by plowing state funds back into local economic development.
BND works with private institutions to help North Dakota's students, entrepreneurs, and farmers and ranchers. In 1967 BND made the nation's first federally-insured student loan. BND has been in the black every year since 1971. In 2017 BND's income was close to $150 million. It's loan portfolio was just under $5 billion. More than half of the profit goes back into North Dakota's general fund, offsetting residents' taxes. The rest goes toward more loans.
You'd think other states might have noticed. Until recently, they didn't; but since 2010, twenty states, nine of them in the West, have seen legislative attempts to start public banks. Proposals have gained grassroots support from small businesses, farmers, and labor unions. Often progressives and far-right small-government folks agree on this one. Some advocates are disgusted by how Wall Street greed affects local economies. They see BND as a model. A public bank can pay the state higher interest on deposits than currently paid by national or global banks, because a public bank doesn’t return profits to individual stockholders, or pay top executives huge salaries and bonuses.
In this year's Legislative Session, State Sen. Jeff Steinborn proposed we study the possibility of a New Mexico state bank. Just study it. His memorial died in the Rules Committee on a tie vote.
Thursday, California approved the nation's second state bank. A century after the first (modern) state bank. Rhode Island, Washington, and Oregon are looking at the idea. New Mexico certainly should.
New Mexico and New Mexican businesses borrow money and pay plenty of interest to lenders. New Mexico government agencies, counties and cities, and businesses have accounts in a variety of banks, which are delighted to use our deposits to make other loans – paying us 1-2% interest and charging 5% or more. Some of that difference compensates the bank for risk, or helps pay its rent and employees. But some is profit. Why shouldn't that stay in New Mexico, to be used in ways that help New Mexicans, rather than fund yachts and Aspen ski houses bank owners and executives?
Opponents – often bank associations – play up the risks of political influence and lack of oversight. For both political and practical reasons, a public bank shouldn't mean the end of private banks. BND works closely with private banks on most loans, enabling private banks to make loans they otherwise might not be able to make, and/or extending repayment times.
Naysayers also point to the “state bank” era in the early 19th Century – particularly after Andrew Jackson's opposition killed the Second Bank of the United States in 1836. None of those state banks survived.
We shouldn't ignore bankers' objections; but a careful study would consider those objections fully; so when they fight even studying a state bank, I wonder how much faith they really have in their own arguments.
BND's century-long record of job creation suggests a second look at a state bank here.
This publication by or about BND tells the Bank's story more fully, starting with its early years. There's also a recent Banking Journal piece on BND; and this is a much more scholarly study of the public-banking concept. I also googled "arguments against public banks" with BND or North Dakota. I found a lot more material favorable to the concept, but this piece sparked by the California discussion suggests that proponents' arguments are "well-intentioned but misguided and unnecessary." This Los Angeles Times Editorial says "A public bank would be risky, expensive and a potential waste of tax dollars." And this libertarian site also argues against the concept. On the other hand, the majority of on-line articles I found were favorable, including "The Case for State-owned Banks" (2012); this American Banker piece is entitled What's Driving the Push for More Public Banks; and this 2013 New York Times "Room for Debate" feature ("Should States Operate Public Banks) collects contrasting expert opinions. I should confess that I haven't yet read all of these; but I hope to do so soon.