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State Governments Look to North Dakota for Public Banking Guidance
Public banking in North Dakota has survived, seemingly, against the odds. Being a traditionally "socialist" form of banking, the Bank of North Dakota has withstood 100 years and is the only state-owned bank in the United States. While public banking has taken form around the world, the most prominent public banks are likely the Sparkassen (German Savings Banks) in Germany. Today, several left-leaning states in the US are seeing the idea come back to life as state governments look for sustainable ways to stimulate their economies and keep their financing options local.
The Bank of North Dakota (BND) is the entity that all US public-banking supporters point to as evidence of state-owned banking success. BND was created in the early 20th century in a North Dakota that was known as a "banking desert." The state had financing needs, primarily for farming, that were not being met. Out-of-state, big city banks were predatory in nature and did not have North Dakotas best interests in mind; therefore, BND was established in 1919 and has democratically served the state in various ways ever since.
Here are some quick facts about BND found on their website (bnd.nd.gov, 2022):
The board of directors are appointed by the Governor
BND is not FDIC insured but instead is backed by the full faith and credit of the state of North Dakota
All profits are either
returned to the state legislative general fund,
used for mission-driven lending programs (economic development),
or added to BND capital
BND does not compete with any other financial institutions in or outside of North Dakota
Many times BND will partner with private banks to offer borrowers lower and diversified rates.
BND does not offer services like debit cards
Many politicians and nonprofits have looked to BND for guidance in developing public bank awareness in their own states. California and New Mexico are a couple examples of states attempting to move forward with public banking legislation. Proponents of public banking argue that state-owned banking systems will do the following:
Allow voters to participate in economic development decision making
Offer lower-interest-rate loans to students, business, and municipalities
Keep profits within the state
Give states more power in fighting recession-related woes
Opponents of public banking are weary to hand such powers to their local government. Some argue that it would also create unnecessary competition within their local banking sector but this isn't necessarily true.
The Bank of North Dakota states the following on this matter:
Bank of North Dakota maintains strong relationships with financial institutions in the state and does not compete with them. This was established in the Bank’s founding principles in 1919: “BND is to be helpful to and assist in the development of…. financial institutions and public corporations within the state and not, in any manner, to destroy or to be harmful to existing financial institutions," (bnd.nd.gov, 2022).
BND's role in North Dakota's lending market is to help financially underprivileged parties finance projects that private lenders are not willing to touch. Also, being a state-backed entity instead of a private corporation, BND acts in the best interest of the state, not shareholders. As it turns out, the regularly-GOP-voting-state has enjoyed utilizing their public bank even while republicans around the country urge their states to dismiss the idea.
As BND's success gain's headlines around the world, I think it is only a matter of time before another state votes to create their own public bank. For more information on public banking refer to the resources below, which I have found helpful while studying this topic.
Thoughts for the comment section:
What are your thoughts on public banking?
Should your state implement something like this? Why?
What else would you like to know about public banking?