State-Owned Banks: The Future of Banking?

March 19, 2010 — -- 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.

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.