Earl Staelin is an attorney and chair of the Rocky Mountain Public Banking Institute Steering Committee of the Colorado Public Banking Coalition. Alec Tsoucatos, Ph.D., is an economist and vice-chair of the Rocky Mountain Public Banking Institute Steering Committee of the Colorado Public Banking Coalition. The following was published in Colorado Politics on Feb. 15th, 2021. Click here for the full article.
Recently, Michael Van Norstrand, president of the Independent Bankers of Colorado (IBC), wrote an op-ed for Colorado Politics: “’Public banks’ would pose risks, play politics.” The commentary made numerous incorrect assumptions and assertions.
Public banks, as advocated by Colorado Public Banking Coalition and Rocky Mountain Public Banking Institute, will be modeled on the 102-year-old state-owned Bank of North Dakota (BND):
- The BND has greatly reduced the risk of banking and has never failed or been bailed out.
- North Dakota has many more community banks per capita than any other state.
- A Colorado public bank would have one depositor: The state of Colorado, which currently deposits most of its tax, fee, licensing and other revenue with JP MORGAN CHASE and WELLS FARGO, major Wall Street banks far removed from the unique economic needs of the state and its residents.
- Public banks would meet many underserved needs for loans in Colorado — for infrastructure, affordable housing, home loans without redlining, small businesses, education and lower-cost student loans, conversion to clean energy, broadband, transportation, and paid family medical leave. The lending in these areas presently provided by the private banks of Colorado fall far short of the real needs.
- BND has averaged 20% return on equity over the last 19 years, far outperforming Chase and Wells Fargo where Colorado governments place most of their deposits. The major banks received massive bailouts from taxpayers in 2008, even though they created the bubbles and risks that caused the crash.
Thanks to BND, North Dakota perennially has the lowest unemployment rate, one of the lowest home foreclosure rates, and the lowest credit card and student loan default rates. North Dakota’s community banks strongly support the BND.
Contrary to IBC’s assertion, like BND, a Colorado public bank will not compete with community banks for depositors or in making loans, but lend in partnership with community banks, sharing 50-50 in making the loan and guaranteeing it. This arrangement will greatly benefit community banks and the communities they serve.
Thus, public banks reduce risk, while the major banks, some of which are IBC members, increase risk by inflating real estate values and engaging in high-risk lending and investment meant to maximize profit for shareholders. Major banks invest little in our local economies and small businesses, and compete with Colorado’s community banks. In contrast, public banks would be very beneficial for community banks and credit unions in Colorado, just the opposite of IBC’s assertions.
The IBC implies that public banks will be unduly influenced by politicians. Wrong. Like the BND, public banks in Colorado will be run by experienced professional bankers and will be strictly insulated from political and corporate influence and from conflicts of interest, in contrast to private banks whose goal is to maximize shareholder profit, which often conflicts with the public interest.
IBC asserts that public banks won’t work in Colorado because conditions here are different from North Dakota, a rural state with a small population. Wrong again:
- Alberta, Canada’s 83-year-old public bank, ATB Financial, has helped make Alberta the strongest economy in Canada, like the BND for North Dakota. Alberta’s population is 4.4 million. It has a mixed industrial and rural economy, like Colorado.
- Germany has 1,500 city-owned savings banks (Sparkassen), which have been the backbone of Germany’s economy and have made it the strongest economy in Europe.
The ability of public banks to create a strong, stable economy is unrelated to size or type of economy. Public banks succeed because tax revenue is deposited in the public’s own bank and loaned locally. Public banks operate with very low overhead, and make low-risk loans. The major banks prefer risky investments elsewhere to maximize profits for their shareholders, believing they’re “too big to fail.”
Public banks create a major new source of income (interest) and new loans for a state, county, or city, without raising taxes, and as a TABOR enterprise would not be subject to TABOR limits on revenue.
The IBC article makes additional incorrect and misleading claims but limited space requires us to answer them in the Addendum of this complete version of our response.