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Lawmakers in state capitals across the country are increasingly intrigued by arguments for public banks. With the financial crisis fueling disdain for the banking industry in general, some view these banks as an appealing alternative to a system they consider to be broken. But Eric Hardmeyer, president and chief executive of the Bank of North Dakota, is not so sure.
April 1
Add California to the list of states looking into the idea of establishing a state-owned bank.
With a goal of stimulating bank lending — particularly to small businesses — Assemblyman Ben Hueso, a Democrat, has introduced a bill that would create a task force to consider the viability of forming a bank that would use deposits of state agencies to support economic development. The bank, the California Investment Trust, would be modeled after the Bank of North Dakota, the only state-owned bank in the country.
"California needs to be creative and examine how it can get credit flowing again to mobilize and strengthen its economy," Hueso said when he introduced the legislation earlier this month. "We must find ways to provide stability to our financial sector, reinvigorate our communities, and put people back to work."
Bills to either create a state-owned bank or study the feasibility of establishing one have been introduced this year in several states, including Massachusetts, Hawaii and Oregon. Lawmakers' motivation is twofold: to stimulate lending at a time when many banks have pulled back; and to help close budget shortfalls. In North Dakota, state agencies are required to deposit their funds in the bank, and all bank profits are returned to state coffers. In 2010, the bank earned $61.9 million, according to its annual report, and generated a return on equity 19%.
So far, though, attempts to create state banks have run into stiff opposition from bankers, who argue that most banks have money to lend to creditworthy borrowers.
In California, the Assembly's Committee on Jobs, Economic Development and the Economy has advanced the bill to create a task force to study the proposal, but the full assembly has yet to take up the measure.
