Public Banks

Publicly owned banks, like the Bank of North Dakota, will bring prosperity and control of local economies back to the community and away from Wall St. and international bankers in the following ways:


  • Local businesses get better access to more, lower cost credit, especially in times when Wall St. banks cut off credit, thus saving existing jobs, creating new jobs and filling empty storefronts
  • Strengthening community banks & credit unions by participating on lending, empowering them to make more and larger loans, also creating more local jobs
  • Loans can be predicated on using local businesses, avoiding “flight” of money and jobs
  • Stronger local economies increase state, county or city revenues, protecting government services from budget cuts without increasing taxes
  • Lending to public entities at low rates, keeping the interest local and avoiding the service charges and fees that would otherwise go to Wall Street
  • Providing secure investment options for retirees, retirement funds that are locally managed and invested
  • Providing loans targeted to community needs such as genuinely helping people facing foreclosure which improves property values and keeps local taxes coming in
  • Providing low interest student loans, supporting local community colleges and their students
  • Providinge quick access to disaster relief funds

These pages discuss how publicly owned banks function, what their benefits and limitations are and whether we should work to create our own publicly owned state and local banks.

Information & Resources – See Below
News & Comments – see the Public Banking Blog

What are publicly-owned banks? Why do we need them?
The Bank of North Dakota
Benefits of Public Banks
Our economy runs on credit
Public banks around the world
The Public Banking movement in the United States
The movement for a Nevada County public bank

What are publicly-owned banks? Why do we need them?

Publicly owned banks are just that – owned by a government entity such as a city, county, state or nation. They typically hold and process the funds and revenues of that entity such as its cash and tax receipts and those funds usually serve as the bank’s deposit base. Other than that, they function like a commercial bank (as opposed to an investment bank). They are constrained by the need to operate at a profit but are directed to serve the public good only in the area served by the government that owns the bank. Because of their narrow focus, they generate economic benefits to the communities they serve and pass their profits back to its government, both of which help address budget needs.

This graphic illustrates the current banking system that our local governments have to operate in. Note that their funds are deposited primarily in federal funds or in Wall St. banks which do not invest in the local economy, but often in speculative derivatives, currency speculation or the stock market…none of which bring investment into the local economy. Loans to local businesses are few and far between since those banks see higher profits from speculative investment. The returns earned by local governments are very small, typically averaging less than 1%.


By contrast, when the state, county or city owns a public bank, that bank’s investments are directed to the local economy. The taxes and fees are deposited in the public bank which then invests in the community. That investment strengthens the local economy, creating jobs, increasing taxes and fees and returning interest to the bank. The bank then returns a portion of its profits to the municipal coffers.

Banking with publicly owned bank

The Bank of North Dakota

The Bank of North Dakota is a state-owned public bank – the only public bank currently in the United States, although there are many around the world. It is funded primarily by being the depository for all state tax collections and fees. Many municipalities and counties also deposit their funds in the bank. It pays a competitive rate to the state treasurer and invests those deposits back into the state of North Dakota in the form of loans. All of its investments are focused on the state and, while it is a for profit institution, its mandate to support the state’s needs means that it provides loans and rates that large Wall Street banks are not interested in. The Bank of North Dakota has become a model for public bank proposals in several states and is our model for a public bank here in Nevada County.

It is important to note that the Bank of North Dakota is not a retail bank. It does not bypass other banks and deal directly with individuals and businesses, so it is not in competition with the states commercial banks. Instead, it is a “bankers bank” that partners with community banks within the state. It provides services like check clearing. Rather than provide loans on its own, it participates in the loans that the community banks make, which enables the community banks to make more and larger loans than they would be able to otherwise. It enables state banks to compete with Wall St. banks in loan size and terms, making the state banking industry healthier than is true elsewhere in our country.

The Bank of North Dakota also directly supports community banks and enables them to meet regulatory requirements such as asset to loan ratios and deposit to loan ratios. It makes shareholder loans to investors in those banks allowing those banks to increase their capital when needed and it can make deposits into those banks to increase their deposit base. As you can see in the following graph, North Dakota has roughly 4 times as many banks per person as the average across the nation, which demonstrates that small banks can prosper in North Dakota while elsewhere they are failing or being swallowed up by big Wall St. banks.

banks per 100k people

The Bank of North Dakota’s lending addresses the state’s needs to support farming, home loans, student loans and commercial loans as important foundations for the state’s economic success. This graph shows how that lending has developed since 1996.


One benefit of the Bank of North Dakota participating in home loans is that North Dakota did not experience the predatory loans or foreclosure fraud encountered everywhere else. In May 2012, foreclosure properties in North Dakota represented only 1 in every 13,804 homes as compared to 1 in 639 homes in California.

Similarly, student loan default in May 2012 was only 3.39% in North Dakota as compared 7.47% in California.

Additional Reading:

Benefits of Public Banks

Local control

We need public banks because they significantly increase our local control of and the resilience our local economies. In an economic sense, it is a question of whether we govern ourselves or are governed from afar.

Even our local economies run on credit. Rather than be reliant on credit from and thus be controlled by the big bank financial industry, which have stifled our local economies by restricting credit and/or making it expensive, public banks can provide the credit our local economies need to avoid job losses and, instead, respond to their markets and grow. They bring a significant measure of control of our local economies back to those of us who live in them.

Public banks are managed, governed and directed locally, by elected officials who have to be responsive to their constituents rather than by distant corporate management that has no connection to or interest in the welfare and success of our communities and is, instead, concerned with their shareholders and stock options.

Public banks can be responsive to local needs. They can keep the cost of credit low because they are not required to pay high rates of return to shareholders. By partnering in loans with local community banks, they actually strengthen the banking system in their communities.

Resilient local economies & protection from the next “crash”

The Wall St./international “too big to fail” banking system nearly crashed the world economy in recent years and seems to be intent on doing it again. This time, though, instead of a taxpayer bailout your bank accounts can be essentially stolen from to prop up a failing bank. In the U.S., the Dodd-Frank Act (Section 716) now bans taxpayer bailouts of most speculative derivative activities. Instead, the FDIC policies now allow failing “too-big-to-fail” banks (the formal term for which is “globally active, systemically important, financial institutions”, referred to as SIFIs or G-SIFIs) to use creditor funds, including uninsured deposits, to recapitalize failing banks – a process somewhat humorously known as “bail-in” or the “Cypress haircut”.

Most public funds are in deposit or investment accounts that are too large to be insured by the FDIC and, if they are in SIFI banks, are now subject to “bail-in” seizure of portions of those accounts. In fact, even your individual FDIC insured accounts are at risk because of risk of FDIC bankruptcy.

By keeping the deposits and investments of our local governments out of SIFIs and in public banks, the risk of a bail-in haircut of our public money is avoided. Instead, the public bank can make loans to maintain the supply of credit in the local economy, regardless of the machinations, risks and failures of the Wall Street banks.

Public banks provide affordable loans

While they must maintain safety of public funds and, hence, must be profitable, public banks are directed to serve their community. The primary way they do this is by providing affordable loans as needed by the community and local economy.

The types of loans would include:

  • Business operating capital
  • Business startup and expansion
  • Farm loans
  • Student loans
  • Renewable energy, energy conservation, etc. loans to homeowners
  • Disaster relief
  • Development loans
  • Infrastructure loans
  • Can “buy down” interest rates

Loans can be targeted. For example: Student loans could be targeted to support local educational institutions. Loans to homeowners, such as those for energy conservation improvements, can specify purchases from local businesses. Business loans can focus credit on attracting preferred industries or on employee owned coops that can be relied on to stay in and invest in the community.

Public banks keep community owned funds in the community

When our communities deposit their public funds in Wall Street banks or various federal funds, that money is seldom returned to our communities in the form of investment. A public bank would only invest that money locally. In addition, interest paid by homeowners and businesses stays in the community.

Public banks keep credit flowing

One of the primary causes of our slow economic recovery is simply the lack of credit at a local level. The Dodd Frank regulations have hamstrung community banks ability to lend and Wall Street banks have simply chosen not to lend at a local level. Public banks can take an active role in keeping credit flowing by participating in loans with community banks in the types of loans described above. In a Washington state Chamber of Commerce survey of small businesses conducted during the recent recession:

  • 42% had been turned down for a bank loan
  • 26% have had a credit line called in
  • 45% have delayed or cancelled expansion plans for lack of credit
  • 68% haven’t been able to make necessary investments in their company for lack of credit
  • 39% have laid off employees of been unable to hire new employees for lack of credit
  • 41% haven’t been able to acquire inventory as needed for lack of credit
  • 55% now carry more than 20% of their business debt on high interest credit cards (avg. rate approx. 14%)

Here in Nevada County, California, local CPAs confirm that our County has experienced much the same constriction of credit when our local economy needed it the most. North Dakota, with its public bank, has not experienced the credit crunch or its economic impact.

Public banks are counter-cyclical: because they can respond to credit shortages imposed by external economic forces by expanding credit, they can ameliorate or even prevent local recessions.

Investment in local communities strengthens their economies increasing fee and tax revenue

By investing in new and existing businesses within local economies, public banks increase economic activity which, in turn, generate greater fee and tax revenues, thus enabling local government programs to be funded without tax increases.

Public banks strengthen community banks

A public bank’s partnership in loans with community banks enables those banks to compete effectively with the “too big to fail” Wall St. banks that otherwise have a tremendous competitive advantage over them. The public bank’s share of the loan will typically be at a much lower interest rate than what the Wall St. banks offer, bringing the rate paid by the borrower down. For example, Bank of North Dakota’s participation loan rate in February of 2014 was just under 2%. So, if a community bank made a business loan in which it partnered its 50% share at a market normal rate of 8% with a public bank share at 2%, the business would pay 5% instead of the Wall St. bank’s rate of 8%.

Also, by partnering with the public bank, community banks are able to make more loans and larger loans than they would otherwise. They are better able to manage their loan portfolios to meet banking regulatory requirements for capital and deposit ratios.

Finally, a public bank can also provide deposit and capital support programs. It can deposit money in the community bank to bolster the community bank’s deposits and it can make loans to investors who purchase bank stock, providing a capital infusion when the community bank needs it (to grow, for example).

Public banks can respond quickly and effectively to local needs, such as disaster relief

A public bank can recognize and respond to the needs of the community more quickly than federal or state agencies. Disaster relief is a primary example: one example of this is the Red River Flood that, in 1997, inundated Grand Forks, North Dakota and East Grand Forks, Minnesota, two sister cities. Both towns had significant damage – the real difference showed in the ensuing rebuilding. In North Dakota, the BND loans got Grand Forks quickly back on its feet with hardly a mark showing from the flood a year later and a system of flood walls, earthen levees, pump stations and diversion channels in place. In contrast, in East Grand Forks, Minnesota which had to rely on the Federal Government and Wall St Banks, there are still signs of the flood to this day, with only empty land serving as flood protection. East Grand Forks lost over 15% of its population in the first few years following the flood while Grand Forks only lost about 4%.

A public bank can also enable its communities to develop programs specific to their community needs. Loan programs can be tailored to the specific timing needed by local agriculture or employee owned, coop industries that provide stable employment can be targeted for investment.

Public banks enable the free market to function as it should

The fundamental benefit of a public bank is that it puts the financial assets of the local government to work in the local economy. This is boon to keeping a free market economy because it supports local businesses who must respond to the local market…Adam Smith’s “invisible hand”. When the local market purchases its goods and services from outside the local area or from businesses who do not rely on the local market for their success, then the “invisible hand” of the market no longer works because those producers and suppliers have other revenue sources and are thus less responsive to our local market’s “hand”.

Public banks save on financing costs

A public bank can save us 35 – 40% of the cost of infrastructure projects. Here’s an example, of the $16 billion cost of the San Francisco Bay Bridge project, roughly 50% of the cost of the project is going to Wall Street in fees and interest.

Typically, major public projects are funded through bonds. The Wall St. banks that set up, market and service the bonds charge high fees for those services. A simple loan from the public bank can be made at equivalent or lower interest rates and without fees. Not only does this lower public financing costs, the interest paid is returned to the bank where is benefits the local community.

Saving on the financing of the project means more projects can be paid for. Projects that the community needs aren’t hindered by the cost of financing.

As the example above shows, by participating with community banks in loans to the local community, a public bank can enable the community bank to make loans at a lower interest rate because the public bank portion of the loan can be at a lower rate, thus bringing down the overall cost of the loan to the borrower.

Public banks to lower barriers to market entry

New businesses are an important part of growing local economies. In recent years, Wall St. banks have restricted funding to new businesses and most new businesses aren’t attractive to venture capital, making good business concepts starved for enough funding be successful.

A public bank can enable local community banks to support more new businesses and, with lower financing costs, strengthen those local firms ability compete with bigger outside companies so that they are more likely to succeed. This increases efficiency through healthy competition.

Our Economy Runs on Credit

Because of politics in our country, we tend to talk about the government printing money but, in reality, the money in our economy comes from simple bookkeeping entries by banks, including the Federal Reserve, which is actually a private bank.

Our economy today runs on the availability of money to do business, not cash but credit. Let’s, for example, consider your purchase of a solar system for your home. You sign a contract and make a small deposit to set everything in motion. The system installer you are buying from starts the process of getting permits and places an order for the materials. Those materials might cost tens of thousands of dollars which a small company isn’t likely to have sitting in the bank and you aren’t going to pay them until the installation is complete. Instead of paying cash, they get credit from either their bank or their supplier so that they only have to pay for the product after you have paid them. If the supplier is providing the credit through extended payment terms (very common), then the supplier is the one needing to obtain credit from its bank. Those loans enable them to take on business they would otherwise not have enough cash on hand to purchase materials for. For the solar installation market to function smoothly and meet demand, the installers or their suppliers must have access to credit.

So, how does money come into the economy for businesses to borrow? There is a common misconception that money comes into the economy when the government prints it. In reality, as of June 20, 2012 the Federal Reserve reported $1.1 trillion in circulation while the money supply (M3) was nearly $15 trillion (try to put your head around that number). Paper and coins represent only about 7 percent of the total money supply.

So, where does the rest of the money our economy runs on come from? The answer is bank loans. When you take out a bank a loan, the money the bank gives you enters the economy – becomes part of the money supply. The bank simply creates an bookkeeping entry, no cash is actually necessary.

This is the stripped down to the basics explanation of money. For the nitty gritty, read MODERN MONEY MECHANICS – A Workbook on Bank Reserves and Deposit Expansion from the Federal Reserve Bank of Chicago.

What is key to this discussion, though, is that the ready availability of bank loans for the operations of business as well as for investment underpins our economy. Without credit, businesses are limited by the amount of “cash” they have available. A key element of our current recession is that money supply – loans – has been contracting as banks struggle to insure that they have enough capitalization after the losses resulting from the real estate market disaster they caused. This has impacted smaller community banks to an even greater extent than the “too big to fail” banks because the new Dodd-Frank regulations require either additional capital or that they constrict their loan portfolios.

One of the things this graph shows is that money supply has accelerated dramatically with Wall Street’s creation of speculatory financial “instruments” like mortgage backed securities. You can see this in the green line that takes off in the mid 90s.

The problem with creation of money supply through accounting entries made by Wall Street banks for phantom investments is that it is disconnected from the real economy of main street. Money supply may be flush as reported by the Federal Reserve but down here at the local level, the credit we need to simply keep our local economies working normally often isn’t available. There are several reasons for this but, fundamentally, it is because the Fed, FDIC and the Wall Street banks are not responsive to main street local needs.

The blue line on this graph provides graphical evidence of the nosedive of money supply in our economy beginning in 2008. Money supply overall dropped below the 1970 level and has still not fully recovered.

This has had a major impact on small businesses in particular, but all businesses as well. In the following graph you can see the blue line representing small business loans declined dramatically after 2008. Overall, total business loans have recovered but small businesses are still struggling to get the credit they need.

But North Dakota – with its public bank – ran counter to the national trends, contributing to its healthy economy and low unemployment. Yes, North Dakota benefited from a fossil fuels boom but local businesses were able to grow rapidly to meet the demand because they had the needed credit available.

Through participation loans with community banks, a public bank can keep credit flowing and the economy running. This is exemplified by the experience of North Dakota in this current recession. The following graphs show that lending overall and to small businesses went up during the recession in North Dakota while it went down in neighboring states. This is exactly what we want to see for our local economies: the ability to maintain the flow of credit so that they are resilient and not “whiplashed” by changes in credit availability.

Community Bank Lending ND area states

Small business credit needs

An example of the credit issues facing small businesses can be found in a A Survey of Small Businesses Conducted by the Chamber Of Commerce in Washington State:

  • 42% had been turned down for a bank loan
  • 26% have had a credit line called in
  • 45% have delayed or cancelled expansion plans for lack of credit
  • 68% haven’t been able to make necessary investments in their company for lack of credit
  • 39% have laid off employees of been unable to hire new employees for lack of credit
  • 41% haven’t been able to acquire inventory as needed for lack of credit
  • 55% now carry more than 20% of their business debt on high interest credit cards (avg. rate approx. 14%)

There is every reason to believe that the experience of small businesses in Washington state are typical of those of small businesses elsewhere in the country. The statistics show that small businesses are having difficulties simply doing day-to-day business. This has obvious and inevitable impacts on our local economies and the members of our local communities. In fact, local Nevada County CPAs have confirmed that our county has experience a similar credit crunch, resulting in lost jobs and lost opportunity.

Public banks around the world

Many countries have public banks. These include Germany, Japan, China, India, Russia, Brazil, New Zealand and Costa Rica, among others. The level of public ownership varies, as does the bank’s role, but these public banks do play a public benefit role beyond shareholder profit.

State owned banks have served an important counter-cyclical role. Their investment policies maintain the money supply in the economy and avoid major boom-bust cycles.

SME (small and medium sized enterprise) funding is a strong suit of public banks. Bank Estado (Chile) and the Development Bank of Canada (BDC) are examples of effective SME funding by state owned banks, as noted in this G-20 report. Targeted lending is a major benefit that can be accessed with a county owned bank as well.

The Public Banking movement in the United States

Seventeen U.S. States currently have proposed legislation or studies addressing implementing public banks in response to state budget crisis. California is among them.

At the most recent count, there were about 30 local organization working to establish a public bank in their cities, counties or states.

These efforts are being supported by the Public Banking Institute (PBI), a national organization promoting public banks in the United States. The Public Banking Institute is tracking public banking around the U.S.

The movement for a Nevada County public bank

There is a local group working to establish a county owned public bank here in Nevada County, California. Currently, the group has determined that the finances of the county could support a county bank even though it is a relatively small county. The county has approximately $155 million on deposit in various institutions and funds an annual receipts of approximately $400 million, more than sufficient to establish a bank.

In order to establish a public bank in Nevada County, it will be necessary for the county to become a charter county. The group is working towards that end. The group’s efforts in that regard can be tracked here on this website.

One member of the local working group, Jed Biagi, is running for the Nevada County Supervisor District 4 seat in June 2014 on a public bank/charter platform. While we hope to get him elected, his campaign is reinforcing the group’s efforts to educate our county residents on these issues and build support for the Board of Supervisors to draft and put a charter, including the public bank, on the ballot. Jed’s blogs can be found on this website.

In addition, the group is in an ongoing process of evaluating what the banking needs of county businesses, citizens and institutions are, if those needs are being met by the existing banking system, and how a county owned bank could better serve those needs. An online survey of the credit needs of the local business community is being conducted.

The online survey can be found here. If you are a member of the Nevada County business community, we encourage you to participate in our research by taking the survey. It should take approximately 5 minutes.

For news and posts on the local Nevada County, California public banking movement, visit the topic’s blog page.

If you would like to participate with the Nevada County public bank working group or be put on our e-mail list to be kept apprised of its activities, please send your e-mail address via our contact page.