State-Owned Banks: The Future of Banking?

The bank does offer savings and checking accounts to consumers, but that line of business makes up a miniscule portion of the bank's portfolio. Loans are its bread and butter.

Mauro F. Guillen, a professor at the Wharton School of Business, said it could take months for other states to establish such operations of their own -- too long to provide small businesses the instant relief some are hoping for.

"There are faster ways of promoting credit than setting up an entirely new bank from scratch," he said.

Risks for State-Owned Banks

There is also the question of whether new state-owned banks would run the risk of growing too fast and making imprudent decisions, following the path of the embattled, government-sponsored mortgage giants Fannie Mae and Freddie Mac.

Those institutions were "forced politically to take more risk" and paid the price for it, said Mark Calabria, the director of financial regulation studies at the libertarian CATO Institute.

The Bank of North Dakota, he said, may have been protected from such pressure because its housing market doesn't need saving.

"If you had bank in Florida or California, it could be pressured to get into more and more real estate," Calabria said. "It's not like you have lots of land bubbles in the Dakotas anymore."

Hardmeyer said that the state's exposure to real estate -- through the secondary mortgage market -- hasn't hurt the bank.

"The state of North Dakota continues to show real estate value gains and so we have not been impacted," he said.

And then there is the price tag: In Michigan, establishing a state-owned bank could require a $150 million bond issue -- unwelcome news to taxpayers already struggling to make ends meet. State taxpayers could also be on the hook if the bank failed -- its model, the Bank of North Dakota, is not insured by the Federal Depost Insurance Corporation; it's backed by the state instead.

Bernero conceded that establishing the bank would mean "borrowing against the future." But the bank also could someday add to the state coffers, he said, as the Bank of North Dakota has done for its home state: BND, which has seen record profits in recent years, contributed more than $300 million to the state's general fund since 1997.

"The bottom line is what we have ain't working for us," he said. "We've got to do things differently."

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