Dollars & Sense, June 13, 2013
Hundreds of people seeking a roadmap for remaking the banking system gathered north of San Francisco in early June at Public Banking 2013: Funding the New Economy, a conference held at Dominican University, whose Green MBA program was a cosponsor. It was the second annual gathering sponsored by the Public Banking Institute (PBI)—the California-based nonprofit that is popularizing the idea of a North Dakota-style public bank.
A handful of fans of rightwing populist Ron Paul mingled with Occupy Finance folks, grizzled leftists, and middle-class suburbanites whose eyes were opened to the dysfunction of the financial system as they or their neighbors were foreclosed upon. According to PBI, 20 states currently have legislative advocates for state banks, a reform also backed by the think tank Demos, the Center for State Innovation in Madison, the Institute for Local Self-Reliance, and Gar Alperovitz, the author of America Beyond Capitalism who was a keynoter at the conference. The North Dakota bank, formed in 1919 after the farmer-backed Nonpartisan League took over the state legislature, holds the deposits of municipalities and the state government, and collaborates with small banks in the state on loans for small businesses and farmers. During a period when too-big-to-fail banks dismiss smaller loans as being unprofitable, this partnership gives community banks important backing, and indeed, North Dakota has more community banks than any other state. The public bank also generates a surplus that supports the state treasury.
Researchers from PBI, Demos, Institute for Local Self-Reliance and CSI all point out that North Dakota weathered the last bust better than most states not only because it is in the midst of an energy boom but because its public bank provides countercyclical support. The public bank operates on a longer time horizon, and ensures that public deposits are invested close to home, unlike public monies placed in Wells Fargo or JP Morgan Chase. Many governments use these larger banks because smaller community banks don’t have the capacity to handle their relatively large deposits. The state bank solves that problem.