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State bank idea evolves

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Articles - March 2011
Wednesday, March 02, 2011
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0311_BankersGraph_01There is only one state bank in the nation, the Bank of North Dakota. It was established in 1919 to give farmers more control and greater access to capital. Ninety-two years later it has evolved into a 170-employee institution with $4.2 billion in assets and an impressive record of performance. “We’ve had record profits for seven years in a row,” says bank president Eric Hardmeyer.

Hardmeyer has run the bank for the past 10 years. As an indication of the importance of his role, his predecessor John Hoeven left to become first governor and later U.S. Senator.

Hardmeyer explains that the Bank of North Dakota is funded through captive deposits. All taxes and fees collected by state government funnel through the treasury into the state bank, rather than going out to bid with private banks. The state bank uses that money to fund state services and manage a $2.8 billion loan portfolio, partnering with community banks in the private sector to boost agriculture and small business.

If that sounds like socialism, well, it kind of is. And it has worked. North Dakota has the lowest unemployment rate in the nation. Property values did not fall there during the housing crash. The bank transferred $340 million back to the state in dividends over the past dozen years, but has not contributed any money for the current biennium because, amazingly, it is not needed. While Oregon and other states are struggling with billions of dollars in shortfalls, North Dakota enjoys a budget surplus.
Given those results, it isn’t surprising that hard-hit states are considering state banks. But just as there is only one Bank of North Dakota, there is only one North Dakota: population 650,000, with significant oil and gas reserves. The state’s success probably has more to do with hydrocarbons than fiscal policy.

Hardmeyer is quick to clarify that he doesn’t recommend that other states try to replicate his bank’s model. Asked what advice he has to offer to states considering it, he says: “You’d better staff it with bankers, not economic development folks. Or else you will have a very expensive, short-lived experiment… The other issue is to make sure you aren’t competing with the private sector.”
Community bankers in Oregon worry that a state-run bank would do just that. “The idea that the state would become a behemoth competitor would be very concerning to me as a community banker,” says Cort O’Haver, executive vice president of commercial banking for Umpqua Bank. Umpqua, the largest Oregon-based bank with $12 billion in assets, increased commercial loans by 23% in 2010 after a big drop-off in 2009, and recently launched a new business banking division to increase lending further. But data from the FDIC shows that financial institutions have cut back on lending over the past several years as problem loans have grown.

Linda Navarro, CEO of the Oregon Bankers Association, says the Bank of North Dakota resulted from a “quirk of history” that has little to do with modern realities. “For most community banks, the crux of their business is commercial lending,” she says. “They are looking for good business loans to make… They just need to make sure the loans can be repaid.”

Bill Humphreys, CEO of Corvallis-based Citizens Bank, says he has studied the North Dakota model and concluded that a state bank would be against the interests of the state and taxpayers. “I don’t see how a state-owned bank could enter the marketplace and all of a sudden start making loans that aren’t being made now,” he says. “Unless they decide they’re going to take on greater levels of risk.”

Humphreys and other bankers point out that one driving reason behind the financial meltdown was loose, easy credit without proper collateral. A state-run bank committed to lending to businesses would “share the consequences of higher risk with the taxpayers,” Humphreys says. “This is not a good time to do this. If you look at the state as a business, they are in such a deficit position that they have no business investing in anything.”




James Chesky
0 #1 state bank idea evolvesJames Chesky 2011-03-13 22:12:22
Yes, it is time for a state bank of Oregon, A state bank of Washington, etc., etc., etc., 49 times over (since one of the 50 is already there).
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Robert Bows
0 #2 The usual disinformation from the private banks and their minionsRobert Bows 2011-03-28 17:34:27
Private banks and those who benefit from private control over our currency are certainly running scared, as more people discover the hoax that is being perpetrated on them.

So, in articles like this, they spread disinformation, begin with the charge that the Bank of North Dakota (BND) represents "socialism." If these folks would bother to read the Constitution of the U.S. and of many states, they would discover that currency and credit are SOVEREIGN functions, that is, requirements of governance, just like the postal service, the armed forces, etc. The use of the term socialism is just an ad hominem (name-calling) to scare people. In fact, what we have now is fascism--corpor ate control over the state.

It's important to understand that the "too big to fail" (TBTF) banks that were bailed out at the taxpayers expense own the Federal Reserve, that is, they control the money supply for the United States and charge us interest for doing so.

This is completely unnecessary, but they don't want you to know that. With this control, they determine when to contract and expand the supply of money to benefit themselves, which means stealing the fruits of our labor. It is just like the infamous financier Andrew Mellon said, "During a depression, assets return to their rightful owners." These folks believe that everything belongs to them and that they loan these things to us.

So, the current economic crisis (the 25th since 1890) is just one more robbery. The private banks are claiming that loans are available, but there aren't any folks with assets to collateralize to get the loan. Duh! They removed 40% of the money supply and kept the spigot off until massive numbers of people went broke, so these banks could foreclose on the assets.

As North Dakota exemplifies, a publicly owned bank behaves differently. Don't be fooled by the sophistry of the TBTF private banks and their minions. It's time to send them packing. As the community bankers of North Dakota will tell you, the BND not only helps them through participation, it doesn't steal their customers, like the TBTF banks. This is why there are more local banks per capita in North Dakota than in any state in the union.

For more, see www.publicbankinginstitute.org
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Jefferson Smith
0 #3 Credit UnionsJefferson Smith 2011-04-07 11:42:38
Credit unions are non-profit and accomplish exactly what the advocates of the state bank want (except without the additional power in the government's hands).
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