Three states and two cities are getting serious about public banking


When I first met New York State Senator James Sanders, Jr., in 2019, he was hoping for a trip to Bismarck, North Dakota – a place that could hardly be more different than its district and its roots in the Far Rockaway district of Queens, New York.

Of course, 2020 put this potential visit on the back burner. But Sanders began bringing a bit of North Dakota to New York in 2021, at least virtually – and if he had his way, legislative too.

As chairman of the New York Senate Committee on Banks, Sanders’ office last week convened an online conversation with fellow New York state and local lawmakers, union leaders, national and local advocacy groups, and Eric Hardmeyer, president and CEO of the state-owned bank of North Dakota. Sanders recently introduced an invoice Establish a state bank in New York, largely modeled on the North Dakota Bank.

New York is not alone. In the last few weeks the legislator has in Washington, Oregon, Philadelphia and San Francisco all submitted bills for the establishment or implementation of the necessary steps for the establishment of “public banks”. Public banks are defined by the Public banking institution as banks owned by the public by a local, state, national, or tribal government that acts as a depositary for state funds. The North Dakota state government deposits all of its taxes, fees, and other income with the Bank of North Dakota. While cities and states have taken tentative steps to establish these institutions for Sometime, 2021 could be the turning point for public banking.

Across the country, state and local governments are currently holding more than $ 600 billion in deposits. Sanders and the other lawmakers envision more public banks using these deposits to do what the Bank of North Dakota has been doing since 1919 – primarily playing a behind-the-scenes role to empower lenders in the community. Ideally, it is enough to reach communities that have faced credit and banking barriers in the past. Legislators are starting to see public banks as an effective potential tool to ensure a fairer recovery than last time.

Proponents also say they are dissatisfied with private banks using public deposits in ways that do not reflect public values ​​- especially the largest private banks that hold them an increasing majority share in total deposits but still heavily invested in industries like fossil fuels. You want these deposits to support more loans near where you live and for purposes that better meet community needs, such as affordable housing, first time home ownership, renewable energy, or small business.

Critics such as banking associations fear that public banks may compete unfairly with the private sector, jeopardize public dollars if such a bank turns out to be unprofitable, or that they are prone to corruption or political favoritism. They argue that private banks have more than enough capacity to meet the needs of communities – despite consistent evidence that private banks don’t.

During the discussion with New York state lawmakers and the local government last week, Hardmeyer drew similarities between the plight of black and immigrant borrowers in New York City, which is still being discriminated against by banks that the farmer in North Dakota used to face Century, which felt spurned by the big banks Chicago and New York.

“A lot of the discontent I hear in New York sounds similar to North Dakota,” Hardmeyer said last week. “Our mission is the same as it was 100 years ago to support economic development across the state, but within that area we have a lot of leeway to work with the banking and credit union to see how this looks over time.” . “

Hardmeyer does not endorse the Bank of North Dakota model, but says he has spoken to lawmakers and banking groups in 30-40 states over the years and answered questions about the bank. “I think it’s a controversial issue wherever I go,” he said. “I will not advocate, but I will educate.”

Last week was no exception. Newly elected NY State Senator Jabari Brisport asked a frequent question about how to counter criticism that a public bank was unfairly competing with private banks.

“Our whole model is based on partnership with banks and not on competition with them,” replied Hardmeyer. “The economic development loan programs that we have are all completed under stake, which means that local banks will make the loan and sell some of it to us. It enables them to leverage relationships and provide more credit. “

Under its partner-not-compete model, the Bank of North Dakota has no branches, and more than 98 percent of its deposits come from the state government, which is required by law to put all of its taxes, fees, and other income into the state bank.

Hardmeyer also emphasized that the state bank does not compete for municipal deposits and leaves them to the local banks. Not that community banks lose deposits to a San Francisco community bank that keeps most of its community deposits at Bank of America; or Philadelphia, which has most of its banking operations in Citizens Bank.

The only loans the Bank of North Dakota makes direct to individuals are student loans and some mortgage loans only in the most rural parts of the state. “And we only do that with the full support of the banking associations in North Dakota,” said Hardmeyer. “What we really aren’t is a retail bank. You cannot come to Bank of North Dakota for a car loan, boat loan, or any personal loan other than a student loan. We put that aside and said the private sector can handle it. “

But that point also raised an important question from Victor Pichardo, MP for the NY State Assembly, who is Sanders’ counterpart in the House of Commons and chairs the board’s banking committee. Pichardo wanted to know if the Bank of North Dakota had a retail banking support model where traditional lenders have already left a community.

“We see how traditional private banks are leaving, they no longer leave footprints,” said Pichardo. “In my [Bronx] District with 125,000 people, we effectively have a bank within a five kilometer radius. “

Hardmeyer did not have a straightforward answer along the lines of the Bank of North Dakota. “Every federal state has something unique when it takes this path,” says Hardmeyer. “Remember what you are trying to solve instead of trying to be everything for everyone. I think that will get you to where you need to be. “

It would take more long-term investment from elsewhere to set up new banks or credit unions in underserved neighborhoods – although it’s not impossible, at least in the Bronx. If there were more new community banks or credit unions in Pichardo’s Bronx or Sanders’ Far Rockaway or Brisports Brooklyn, the numbers suggest that a state-owned bank with a behind-the-scenes model can make it stronger as a group. Community banks hold a higher market share of deposits in North Dakota than in any other state, so an analysis of the FDIC data by the Institute for Local Self-Reliance. And that’s important for small businesses: The Institute for Local Self-Reliance has also found that in states where community banks have more market shares, more Loans from the paycheck protection program went to businesses, for example. According to June 2020 data, North Dakota was by far the leader in paycheck protection loan issuance.

While there are some differences in the proposed legal structure and governance, all of the public banking laws tabled last month envision institutions to work with rather than compete with community banks and credit unions.

And it can be a very profitable model. The Bank of North Dakota had record profits for 16 straight years through 2020, and although profits had declined a bit last year, Hardmeyer said it was still a top 5 year for the bank in terms of profitability. The bank usually uses some of these profits to fund the general government budget and keeps the rest to invest in the bank’s growth. Since its inception, the state-owned bank has repaid more than $ 1 billion into the state budget.

“North Dakota is a very red state with two very socialist institutions, a state-owned bank and a state-owned flour mill and elevator,” Hardmeyer said. “Would they be created today? I think it is unlikely, but today we are such a part of the economic development that you would find it difficult to eliminate the bank. It’s really ingrained in North Dakota, in our history, and in the fact that it works. It may not be the model that others choose. “

Oscar is Next City’s senior business correspondent. He was previously editor of Next City from 2018 to 2019 and Next City Equitable Cities Fellow from 2015 to 2016. Since 2011 Oscar has dealt with community development finance, community banking, impact investing, economic development, housing and more for media like Shelterforce, B Magazine, Impact Alpha and Fast Company.

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