Maine Lawmaker Proposes Creating State Bank

[Shallah Kali]

http://www.mpbn.net/Home/tabid/36/ctl/ViewItem/mid/3478/ItemId/16101/Default.aspx


Two Democratic lawmakers teamed up with local business owners this morning to unveil a proposal to create a Maine state bank, although the plan is not being welcomed by the state's mainstream banking community. Barbara Cariddi has more.


The legislation was announced along with a report outlining the problems Maine small businesses are facing with credit issues, says state representative Diane Russsell (right) of Portland. "What if we took our tax payer dollars out of Wall Street and invested right here on Main Street?" she said.

The bill she's sponsoring, LD 1452, will, she says, allow the state to move nearly half a billion dollars in assets held by out-of-state banks, into a Maine state bank, establishing a partnership with community banks to expand small business lending.

"Small business owners repeatedly talk about how they don't have access to affordable credit," she said. "Let's leverage our taxpayer money through partnership loans to knock some percentage points off a loan so we can get more money circulating into the local economy, spur economic growth, entrepreneurialism and job growth."

Link to the bill:
http://www.mainelegislature.org/legis/bills/bills_125th/billtexts/HP106601.asp

State Bank proposal targets jobs creation, retention

http://www.wcsh6.com/news/article/156753/314/State-Bank-proposal-targets-jobs-creation-retention

Representative Diane Russell (D) Portland, is presenting the plan to the Legislature.

The State Bank would be modeled after the Bank of North Dakota which started 90 years ago to aid farmers who were struggling with rising interest rates.

The State Bank would not be competition for Maine's existing financial institutions but would rather work with banks to provide business owners with better access to a line of credit.

Some business owners, including Cheryl Oliver at Back Bay Bicycle in Portland say they've experienced new restrictions to their loans. Oliver's business is seasonal and until recently she says banks were flexible with her payments based on the season

Should the state be in the banking business?

http://new.bangordailynews.com/2011/04/22/business/lawmaker-proposes-state-bank-to-aid-business/?ref=latest

According to the Bank of North Dakota’s website, the bank is not a member of the Federal Deposit Insurance Corporation. Instead, all BND deposits are guaranteed by the full faith and credit of the state of North Dakota. And while all state funds and funds of state institutions are required by law to be deposited in the BND, other deposits are accepted from any source, unlike Russell’s proposal.

BND opened with $2 million of capital. Currently, the bank has more than $270 million in capital. North Dakota began using bank profits in 1945 when money was first transferred into the general fund, according to the site, and since then, capital transfers have become the norm to augment state revenues. Since 1945, BND has returned more than $555 million to the general fund.

BND spokesman James Barnhardt said at least 20 to 30 states have looked at North Dakota’s model in hopes of doing something similar, though he wasn’t sure if any of them have actually moved beyond studies to implementation, though the website said BND is the only state-owned bank in the nation.

BND works in partnership with financial institutions, said Barnhardt, and enhances their ability to make loans. There are certain reasons the bank works well in that state, he said, including a propensity of agriculture businesses, large geography and small population. And while many point to the bank as a prime reason for North Dakota’s strong economy, other aspects such as oil and natural gas resources and booming ag sectors are in the mix as well, he said.

[Shallah Kali]

1. A Choice for States: Banks, Not Budget Crises

7 ways state-owned banks could help states overcome budget deficits and boost their local economies.
http://www.yesmagazine.org/new-economy/a-choice-for-states-banks-not-budget-crises

The states are on their own. Policymakers are therefore considering a variety of reforms designed to increase bank lending, particularly to small businesses, the hardest hit by tightening credit standards. One measure that is drawing increasing interest is the creation of a bank modeled on the Bank of North Dakota (BND), currently the only state-owned bank in the country. The BND has a 92-year history of safe, secure and highly profitable banking. North Dakota has the lowest unemployment rate in the country; and in 2009, when other states were floundering, it had the largest budget surplus it had ever had.


Eight states now have bills pending either to form state-owned banks or to do feasibility studies to determine their potential. This year, bills were introduced in the Oregon State legislature on January 11; in Washington State on January 13; in Massachusetts on January 20 (following a 2010 bill that lapsed); and in the Maryland legislature on February 4. They join Illinois, Virginia, Hawaii, and Louisiana, which introduced similar bills in 2010. The Center for State Innovation, based in Madison, Wisconsin, was commissioned to do detailed analyses for Washington and Oregon. Their conclusion was that state-owned banks in those states would have a substantial positive impact on employment, new lending, and state and local government revenue.

State-owned banks could be a win-win for everyone interested in a thriving local economy. Objections are usually based on misconceptions or a lack of information. Proponents stress that:

A state-owned bank on the BND model would not compete with community banks. Rather, it would partner with them and support them in making loans. The BND serves the role of a mini-Fed for the state. It provides correspondent banking services to virtually every financial institution in North Dakota and offers a Federal Funds program with daily volume of $330 million. It also provides check clearing, cash management services, and automated clearing house services. It leverages state funds into credit for local purposes, funds that would otherwise leave the state and be leveraged for investing abroad, drawing away jobs that could go to locals.

[gratuitous]

2. Ordinarily, I'd oppose this idea

I think a state bank would have advantages over a private sector enterprise that it shouldn't have, and be able to compete more successfully thanks to those advantages (like not being so profit-driven and having to support a bloated executive sector). However, in the last 30 years, banks have moved from being bulwarks of the community financial sector to wanting to compete with the high-flyer venture capitalists, and get some of that sweet, sweet high return juice. A state bank that followed the 3-6-3 model of yesteryear (take in deposits at 3%, lend the money out at 6%, on the golf course by 3) wouldn't be making enormous pots of money for the presidents and vice presidents, but would provide a stable financing anchor for things like community improvement and gradual, planned, sustained development. There isn't much in the way of serving that investment niche anymore.