Just one U.S. state currently has a public bank — and it’s trouncing the competition.
In its continued fight for economic justice for the 99 percent, especially in the wake of the 2008 financial collapse, Occupy Wall Street recently shared a story detailing how America can replace Wall Street financing with public banks.
While the idea of a public bank may sound far too much like “socialism” to occur in the U.S., conservative North Dakota has a public banking system, and studies have found that in addition to being less corrupt, the state’s public banks are more efficient and profitable than private banks.
Created in 1919 in the midst of economic woes for many of the state’s farmers, the Non-Partisan League, a populist organization, voted to implement public banks in the Midwestern state to free farmers from “impoverishing debt dependence.”
Some 90 years later, the bank is still in existence in North Dakota and is reportedly thriving while it helps the state’s community banks, businesses, consumers and students obtain loans at a reasonable rate.
But it’s not just Occupy Wall Street advocates and “socialists” who view public banks as a smart investment for the nation’s economic future — some Wall Street economists also agree public banks are a better financial choice.
Take Michael Hudson for example. Hudson is a former Wall Street economist who says the private banking industry is “cannibalizing the economy,” since private banks “are supposed to make money” and engage in “parasitic” behavior in order to do so. Public banks, on the other hand, “would make loans for long-term purposes to serve the economy and help the economy grow.”
He said when the banks failed in 2008, the federal government should have taken over control of the banks and began to operate them as public banks:
“If the government would have taken over Citibank it would not have done the kind of things that Citibank did. The government would not have used depositors’ money and borrowed money to gamble. It wouldn’t have gone down the casino capitalism route. It wouldn’t have played the derivatives market. It wouldn’t have made corporate takeover loans.
“None of these are productive from the vantage point of economic growth and raising productive powers and living standards. They would not be the proper behavior of a public bank.”
Ellen Brown is the president of the Public Banking Institute, a group that argues there is a need for a public bank in every state and major city in the U.S. She agreed with Hudson and said that if California had public banks, the state’s economic outlook would look much different right now:
“At the end of 2010, [California] had general obligation and revenue bond debt of $158 billion. Of this, $70 billion, or 44 percent, was owed for interest. If the state had incurred that debt to its own bank — which then returned the profits to the state — California could be $70 billion richer today. Instead of slashing services, selling off public assets, and laying off employees, it could be adding services and repairing its decaying infrastructure.”
Land of financial socialism
Formed in January 2011, the Public Banking Institute was started by financial writers, public finance experts and former bankers to “further the understanding, explore the possibilities, and facilitate the implementation of public banking at all levels — local, regional, state, and national.”
Public banks differ from private banks in that instead of public revenue from sales taxes or property taxes being invested in a Wall Street endeavor, a public bank reinvests that money by investing in small businesses, public infrastructure projects and student loans, among other things.
PBI often points to the Bank of North Dakota as an example of how public solutions exist as a way to end Wall Street’s grip on the U.S. economy, since it’s the nation’s sole state to have a public bank and has been for quite some time.
Though most states have struggled to avoid a budget deficit, North Dakota is the only state in the U.S. that continues to have record-setting surpluses.
According to a press release from May 2013, PBI reported that the BND had reported a record $81.6 million in profits in 2012, which is the bank’s 40th continuous year of profitability.
“Even though its Lending Services Portfolio balance increased from $2,996 million in 2011 to $3,274 million in 2012, credit losses shrunk from $52.9 million in 2011 to $52.3 million in 2012, indicating a healthy portfolio,” the release said.
“The commercial loan portfolio grew from 36 percent to 40 percent of the Lending Services portfolio, representing $1.273 billion in loans. Student loans and residential loans decreased proportionally from 35 percent and 19 percent, respectively, to 32 percent and 18 percent. Agriculture loans remained at the same relative percentage year-to-year at 10 percent, growing to $343 million in 2012 from $289 million in 2011.”
That’s not surprising for supporters of public banks, such as those at PBI. They said that if the some $1 trillion that is invested in Wall Street was instead given back to the public to support infrastructure projects, small businesses and education, about 10 million new jobs could be created throughout the U.S., which “would effectively end our destructive unemployment crisis.”
“Public banks don’t speculate or gamble on high risk,’financial products,’” Brown said. “They don’t pay outrageous salaries and bonuses to their management, who are instead salaried civil servants. The profits of the bank are all returned to the only shareholder — the people.
“North Dakota is a small state,” she added. “Imagine the returns to the people of larger states, with larger populations and a larger volume of economic activity.”
Coming soon: End of Wall Street?
Though North Dakota has been the sole state in the U.S. thus far to have public banks, about 20 states are currently considering legislation to create state banks. If more and more states start to implement such a financial structure, Sam Knight says Wall Street may fire back by filing a lawsuit against the banks — and Wall Street may win.
Knight said that the activities of the BND and other state banks may be ruled illegal because “foreign bankers could claim the BND stops them from lending to commercial banks throughout the state.”
But as Les Leopold wrote in an article for Salon, since the financial collapse activism against Wall Street has slowly been replaced by fatalism as many advocates began to feel Wall Street was too big and too powerful to change. However, “this new public banking movement could have legs,” since most Americans are still furious about how much bigwigs in the financial industry profited from the crisis.
Brown agrees that the more people know about the public banks, the more likely it is they will begin to appear throughout the U.S. “We need to get more information out there and develop a groundswell of popular support,” she said.
Ideally, Brown said PBI would like to see 50 state-owned banks and scores of county- and city-owned banks providing low-cost banking services to 10 million currently unbanked people and over 20 million who are underbanked throughout the United States.