State-Owned Banks: The Future of Banking?

When the recession challenged Pam Wanner's bakery, she found comfort in what might seem a surprising place: her bank, the Bank of North Dakota, the only state-owned bank in the country.

BND teamed up with a private, local bank in 2007 to provide Wanner's Twisted Bakery with a $100,000 loan that the bakery used to invest in equipment to create gluten-free products. Though the recession slowed Wanner's business plans, she's optimistic that her gluten-free herb breads and pastries will help Twisted's bottom line bounce back. If not for BND, she said, she probably never would have gotten such a loan at all.

"They had confidence in what we were presenting to them and they cared about us making it," she said.

VIDEO: The Middle Class Wants More from Banks

Stories like Wanner's are sparking interest from state officials outside of North Dakota, who see the 91-year-old Bank of North Dakota as a model of what they could do to revive troubled business lending in their own home states. Most recently, in Michigan, Democrats in the state senate and Michigan gubernatorial candidate Virg Bernero began pushing to establish a state-owned bank similar to North Dakota's.

Bernero, a Democrat and the mayor of Lansing, argued that the state's tax revenues should be held in a new state bank instead of in large private firms, and that the new bank could also work in cooperation with community banks, like BND does, to provide much-needed small business loans.

"I don't think that our money should be making a one-way trip to Wall Street," he said. "I don't see why we're investing in Wall Street when they're not investing in us."

Bank of North Dakota officials said that at least 10 states have turned to them for guidance, including some states, like Michigan, hardest hit by the financial crisis. They include California, Florida and Illinois, where a bill to create a state bank already is under consideration by the state legislature.

Karl Marx Would Be Proud?

Michigan State Sen. Hansen Clarke hopes his state will be the first to follow North Dakota's lead and establish what he and others call an economic development bank.

Michigan currently carries the dubious distinction of having the highest unemployment rate in the nation.

"What I'm trying to do is help create jobs for probably one of the most economically-depressed states in the country," Clarke said. "The state economic development bank would be one way to be able to provide small businesses the capital they need to expand and create jobs."

The proposal has run up against fierce ideological opposition from state Republicans. The state's GOP released a recent statement saying that Communist icon Karl Marx "would be proud of Bernero" and suggested that a state-owned bank was part of the Democratic Party's "agenda to take over every aspect of our private lives."

Bank of North Dakota's president, Eric Hardmeyer, said he's not expressly advocating for the creation of other state-owned banks.

"That is a decision that each state has to come to on their own," he said. "I fully understand the concerns that others would have about this model."

The concerns are many. For one thing, critics point out that the North Dakota bank is a creature of an earlier era: It was established in 1919 to provide financing to farmers but has grown to offer other small business loans and student loans. It also does business in the state's secondary mortgage market, acting as a buyer and servicer of residential loans originated by other banks.

  • 1
  • |
  • 2
Join the Discussion
blog comments powered by Disqus
You Might Also Like...