Huffiington Post, March 29, 2013
We all know the banking system is broken. It’s easy to become pessimistic in the face of corporate and political corruption, but the system can be changed. We’ve done it before, and we can do it again.
One pathway to genuine reform is “public banking”: the establishment of banks which are owned and operated by the government, and which serve people and small businesses directly. Here’s why public banking should be included in the agenda for deep and genuine financial reform.
There’s a working model for state banking.
Reform groups like the Public Banking Institute often cite the state-owned Bank of North Dakota as a model worth emulating. The Bank was created in 1919 to “promote agriculture, commerce, and industry” and to “be helpful to and assist in the development of… financial institutions… within the State.”
The Bank of North Dakota operates a little bit like the Federal Reserve. It’s primarily a “bank for bankers,” rather than an institution that serves customers. It does provides student loans, and individuals can deposit money, but it doesn’t have ATMs or other customer service amenities. (Individual deposits make up less than 2 percent of its assets.)
The Bank of North Dakota has established relationships with all 94 of the state’s community banks and has helped increase their lending ability in a targeted way that supports economic growth.
Local banking is desirable for many reasons, including the lenders’ familiarity with their community. (For an idealized version, think of Jimmy Stewart in It’s a Wonderful Life.) The presence of thriving local banks also helps fight the over-centralization of the banking system.
Public banking works.
In North Dakota, community banking has also meant community lending. A meaningful economic recovery can’t take place until banks stop exploiting low-interest Federal Reserve loans and start lending responsibly, with well-underwritten loans to both consumers and the small-to-medium sized businesses that are the engines of economic growth.
A 2011 report from the Institute for Local Self-Reliance shows how well North Dakota’s banks did in the aftermath of the financial crisis, when compared to those of neighboring states and the nation as a whole.
We’re already in the “public banking” business. Now we need to get it right.
Our country already has a public bank – of sorts – in the Federal Reserve. The Fed was created by Congress and derives its power from the people.But the Fed is enmeshed with private banking interests, so it tends to serve them at the public’s expense – and is egregiously mismanaged, too.
We need a sound monetary and financial system. Central banks like the Fed stabilize the economy and ensure the soundness of currency.
Other government banking initiatives include Fannie Mae and Freddie Mac for housing; the Federal Deposit Insurance Corporation (FDIC), which insures most bank deposits; and Sallie Mae for student loans. Despite the privatized abuses in some bank-related government programs, the services they provide are valuable and remain popular among voters.
We urgently need to reform the Fed. (William Greider lays out some of those reforms here). We also need to protect other government banking program from private-sector greed and abuse.
We need public banking – but we need to do it right.
Public banks are no more “socialistic” than schools, police, fire departments, or the military.
From the Blog of Richard (RJ) Eskow