A path to restructuring the financial industry: State Banks

[For those not aware, the steady deregulation of the financial industry since the 1980’s basically gave the big banks and associated industries (insurance, credit rating, etc) the freedom to do whatever the hell they want, which pushed us back into the situation of the 1920’s, where there was zero regulation of anything financial — ie, recreating conditions that led to the Great Crash of 1929 due to a huge asset bubble (that time in stock prices, this time in housing prices), and inducing the Great Depression…which we only narrowly averted reenacting in 2008, and are still experiencing. A big area of interest in how to restructure the financial industry landscape is state banks, in which we have a living, breathing example in North Dakota. A great article was recently published on this very topic, and I have taken the liberty of reproducing the key excerpts from it…which I hope convey its vital essential message that this is a HUGELY GOOD IDEA to put our support behind. –Rick]

These are excerpts from How State Banks Bring the Money Home by Stacy Mitchell, appearing in Yes! magazine (link to article to appear soon! until then, here are my excerpts that show why this is such a compelling article):

How State Banks Bring the Money Home

by Stacy Mitchell

…[t]he rapid and dramatic consolidation of the banking industry over the last decade…has hindered the US economy’s ability to create jobs.

…[t]he nation’s 6,900 small, locally owned, community banks…control $1.4 trillion in assets…[t]hat’s 11 percent of all bank assets.

…[f]our giant banks — JP Morgan Chase, Bank of America, Citibank and Wells Fargo — now command $5.4 trillion in assets, or 40 percent of the total.

Why do giant banks make so few small-business loans? Automation is the short answer….

Small-business loans are not so easily mechanized. Each is a custom job, requiring human judgement to evaluate…

Our financial system is top-heavy with big banks that are scaled to meet the needs of large multinational corporations….US-based multinationals have eliminated 3 million American jobs over the last decade.

In short, we have a financial system that is mismatched to the economic needs of American communities.

…one of the most promising strategies involves creating state-owed banks that can bolster the lending capacity of local banks…

North Dakota is the only state, so far, that has a publicly owned bank. Founded in 1919, the Bank of North Dakota (BND) was a populist response to dynamics similar to those we face today…

BND is wholly owned by the state which deposits all of its money, except pension funds, with the bank…

Thanks largely to BND, North Dakota has a more robust community banking network than any other state….

Small banks account for 60 percent of deposits in North Dakota, compared to only 16 percent nationally…

…BND has pumped $300 million in profit [Emphasis mine. –rick] into the state’s general fund over the last decade. (In a state like Illinois that has a population of 13 million, the equivalent return would be about $6 billion.)

Inspired by the North Dakota model, activists and small-business owners in more than a dozen states, including Oregon, Maine, Massachusetts, Montana and Washington, backed bills this year to create state-owned banks. …

…the Center for State Innovation has produced several reports analyzing how a public bank would function in various states….

…the real power of a state bank lies not so much in its own lending, but rather in its capacity to support local banks and remake the financial landscape to better meet the needs of small businesses and communities.