New Mexico State Bank ? It Could Help our Economy

Suppose, in 1919, New Mexico, a cattle-raising state being taken advantage of by large cattle-dealers and big eastern banks, had formed its own state bank? 

In agricultural North Dakota, a populist wave established the Bank of North Dakota (BND) to protect farmers from powerful out-of-state grain brokers, railroad tycoons, and private bankers. Through changing times, BND has fulfilled its mission to "promote agriculture, commerce, and industry," by plowing state funds back into local economic development.

 

BND works with private institutions to help North Dakota's students, entrepreneurs, and farmers and ranchers. In 1967 BND made the nation's first federally-insured student loan. BND has been in the black every year since 1971. In 2017 BND's income was close to $150 million. It's loan portfolio was just under $5 billion. More than half of the profit goes back into North Dakota's general fund, offsetting residents' taxes. The rest goes toward more loans. 

 

You'd think other states might have noticed. Until recently, they didn't; but since 2010, twenty states, nine of them in the West, have seen legislative attempts to start public banks. Proposals have gained grassroots support from small businesses, farmers, and labor unions. Often progressives and far-right small-government folks agree on this one. Some advocates are disgusted by how Wall Street greed affects local economies. They see BND as a model. A public bank can pay the state higher interest on deposits than currently paid by national or global banks, because a public bank doesn’t return profits to individual stockholders, or pay top executives huge salaries and bonuses.

In this year's Legislative Session, State Sen. Jeff Steinborn proposed we study the possibility of a New Mexico state bank. Just study it. His memorial died in the Rules Committee on a tie vote.

Thursday, California approved the nation's second state bank. A century after the first (modern) state bank. Rhode Island, Washington, and Oregon are looking at the idea. New Mexico certainly should.

New Mexico and New Mexican businesses borrow money and pay plenty of interest to lenders. New Mexico government agencies, counties and cities, and businesses have accounts in a variety of banks, which are delighted to use our deposits to make other loans – paying us 1-2% interest and charging 5% or more. Some of that difference compensates the bank for risk, or helps pay its rent and employees. But some is profit. Why shouldn't that stay in New Mexico, to be used in ways that help New Mexicans, rather than fund yachts and Aspen ski houses bank owners and executives? 

Opponents – often bank associations – play up the risks of political influence and lack of oversight. For both political and practical reasons, a public bank shouldn't mean the end of private banks. BND works closely with private banks on most loans, enabling private banks to make loans they otherwise might not be able to make, and/or extending repayment times. 

 

Naysayers also point to the “state bank” era in the early 19^th Century – particularly after Andrew Jackson's opposition killed the Second Bank of the United States in 1836. None of those state banks survived.

We shouldn't ignore bankers' objections; but a careful study would consider those objections fully; so when they fight even studying a state bank, I wonder how much faith they really have in their own arguments.  

 

BND's century-long record of job creation suggests a second look at a state bank here.

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[The above column appeared this morning, Sunday, 6 October 2019, in the Las Cruces Sun-News, as well as on the newspaper's website and on KRWG's website.  A spoken version will air during the week on KRWG (and will shortly be available on the website) and on KTAL Community Radio, 101.5 FM (www.lccommunityradio.org).]

This publication by or about BND tells the Bank's story more fully, starting with its early years. There's also a recent Banking Journal piece on BND

. ; and this is a much more scholarly study of the public-banking concept.  I also googled "arguments against public banks" with BND or North Dakota.  I found a lot more material favorable to the concept, but this piece sparked by the California discussion  suggests that proponents' arguments are "well-intentioned but misguided and unnecessary." This Los Angeles Times Editorial

says "A public bank would be risky, expensive and a potential waste of tax dollars." And this libertarian site also argues against the concept.  On the other hand, the majority of on-line articles I found were favorable, including "The Case for State-owned Banks" (2012); this American Banker piece is entitled What's Driving the Push for More Public Banks; and this 2013 New York Times "Room for Debate" feature ("Should States Operate Public Banks)  collects contrasting expert opinions.  I should confess that I haven't yet read all of these; but I hope to do so soon.

[I want to thank Sun-News columnist Madeleine Sanchez.  This morning I read her column urging Greta Thunberg to read some British anti-climate-change lobbying group's arguments.  I immediately agreed with Ms. Sanchez's statement that people should read more and pontificate less.  That's great advice for most of us, certainly including me.  However, I was disappointed that she steered readers only to a dissenting view of what's going on around us.  Particularly on this subject, and particularly with younger readers, that's a great disservice.  Unlike Ms. Sanchez and me, those readers and their children will have to live with extreme consequences of climate-change.  We're starting to see some of that, but nothing like what their diminished quality of life will be like if we follow the "head-in-the-sand" approach she and Donald Trump advocate.  However, in the process I felt more inclined than usual to include a variety of reading on the subject of my own column.  I normally try to read arguments for and against whatever I'm writing about; but I want to make more of an effort to include as links on some issues not only the relevant material I tend to agree with but some that I don't.

In any case, I do strongly favor studying the state bank possibility.  There are a lot of good arguments for such a bank; but, as always, we should give fair consideration to opposing views.]  

A friend emailed me this morning:

Good morning Peter!  Thanks for the good column on public banking.

The comments about the failure of public banks in the 1800s needs a bit of background to be properly understood..  Thousands of banks failed in the 1800s.  Banking was a primary weapon of the Robber Barons to sabotage anyone else in the economy and facilitated theft on a grand scale:  This, tied with the voting laws that totally rejected the Declaration of Independence: We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.  The right to vote is the only practical way to obtain "consent of the governed", made it very difficult to maintain an honest system of government or commerce.  The private banksters in fact controlled the so called public banks of the 1800s.

The voting part was immensely helped by the 19th amendment.  The reaction of the voters to the 1929 crash instituted some temporary reforms that made commerce a bit more honest.  Today we have a major counter offensive by the billionaire class against both democracy (voting rights) and honest commerce (deregulation). 

The Bank of North Dakota's board of directors are all elected by the public : the governor, agricultural commissioner and attorney general.  The executive committee is chosen by these people and answers to the state industrial commission as far as compliance with the charter purposes and daily management performance.  That is why the officers are paid reasonably, not lavishly.  It is also why the bank has survived for 100 years without a crash.  Around the world public banks performed much better in the 2008 crash than private banks did.  Credit unions also outperformed banks in the crash.

Other than making sure the private banksters don't infiltrate any public bank we create, we must make sure it is democratically controlled.  That will make it very unlikely that it won't perform very well.

Thanks very much for the very nice support of public banking!  Once again I appreciate the civility of your comments.  Take care.