It is risky to have a government run its own bank
Answer: This argument is incorrect. Public banks like the Bank of North Dakota (BND) are run by experienced and independent banking professionals, not by politicians. The BND has been very well run without fraud or financial scandal for 101 years and has made North Dakota’s economy the strongest and most stable of any state in the country. The charter of a public bank imposes strict rules to prevent improper political or corporate influence and conflicts of interest from influencing lending and other important decisions of the bank. In contrast, the big Wall Street banks have repeatedly brought the nation’s economy down through unwise and risky lending practices and have repeatedly engaged in and been heavily fined for fraudulent and illegal lending practices that badly hurt the public and their own customers. Their lending practices cause the so-called “business cycle” in which the entire economy crashes every six years or so, causing economic devastation, followed by bailouts of Wall Street for which taxpayers bear the burden through increased taxes or reduced services or both.
How do we know a public bank won’t be improperly run by politicians and insiders for their own benefit?
Answer: In existing and proposed US Public Bank models, skilled bankers, not the government, make bank decisions and provide accountability and transparency to the public for how public funds are used, unlike private banks. A public bank will be run by professional bankers in the public interest and accountable to publicly elected officials. Rules will be carefully written to protect the bank’s operations from conflicts of interest involving politicians, insiders, and corporate interests. Operations will be monitored for compliance and such rules will be strictly enforced against infractions. public accountability and the financial operations of the bank will be publicly disclosed on-line
Leaders of the Colorado Public Banking Coalition and the Rocky Mountain Public Banking Institute have no personal financial interest in having a public bank except the benefits that will accrue to all citizens. Public banking is distinguished from private banking in that its mandate begins with the public’s interest. Privately-owned banks, by contrast, have shareholders who generally seek short-term profits as their highest priority. Public banks sometimes enable the reduction of taxes because their profits can be paid into the general fund of the government. The costs of public projects undertaken by governmental bodies are also greatly reduced, because public banks do not need to charge interest to themselves,thus eliminating an average of 50% (ranging from 35% to 77%) of the cost of such projects that consists of interest.
Public banks are too risky.
Answer: This argument fails because the Bank of North Dakota has been strong and stable over the past 101 years. It has achieved record profit each year for the past seventeen years, averaging 17% return on equity over this period. As explained elsewhere in our FAQs, BND made North Dakota the only state that experienced no recession in 2008 but record income instead. In contrast, the major private banks have repeatedly failed due to the boom and bust economy they create. Because they have conditioned political leaders and the public to believe (incorrectly) that they are “too big to fail” they have been repeatedly rescued or bailed out by the government or Federal Reserve, for taxpayers must bear the burden.
Public banks compete unfairly with private banks.
(1) In our plan a state public bank would not take deposits from private persons or corporations, and would not compete with private banks for private depositors, taking only deposits of government instead.
(2) Instead of competing with private banks it would partner with local private community banks in making loans, as the Bank of North Dakota does. That practice has resulted in stronger community banks and no bank failures in North Dakota for many years and far more community banks per capita in North Dakota than any other state.
(3) Some may argue that it would be unfair for a public bank to take deposits from governmental entities. But that implies that a government and its people don’t really own their own money, that it belongs to the big Wall Street banks. Our answer is that a sovereign government must have the right to decide where to put and invest its own money, and not be forced to turn it over to the major banks to use for their own maximum advantage at public expense. Further, when governments put their money in private banks, as they do presently (except in North Dakota), they violate their trust obligation to use the money to serve the public interest of the people and community.