Recently, Michael van Norstrand, president of Independent Bankers of Colorado (IBC), wrote an Op-Ed for Colorado Politics: “Public Banks Would Pose Risks, Play Politics.” The Op-Ed makes 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 public 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.
- 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 community they serve.
- 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 falls far short of the real needs.
- In the Great Recession, the BND, in partnership with community banks in North Dakota, increased lending enough to offset the decline, making North Dakota the only state that suffered no recession in 2008 or after. Private banks in all other states cut lending, causing and deepening the recession.
- 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.
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 risky lending and investments. They don’t invest much in small businesses or cooperate much with community banks in Colorado but compete with them. In contrast, public banks would be very beneficial for community banks and credit unions in Colorado, just the opposite of IBC’s assertions.
BND has averaged a 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.
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. They 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 Public Banking movement is advancing rapidly. (PBI Link here) and should be established in Colorado. People may sign on in support at www.ColoradoPublicBankingCoalition.org.
The IBC article makes additional false claims but limited space requires us to answer them in the Addendum of this complete version of our response.
Add: By contrast, it is clear from the financial history of Colorado that State debt has skyrocketed to over $24 billion, and all other subdivisions of the state have increased their collective debt to nearly $50 billion. These debts are largely owed to the same private banks and other private investors. With public banks, this increase of public debt to private interests would cease, and debt reduction could begin.
Add: Mr. van Norstrand asserts that a handful of public banks failed 200 years ago because of “gross mismanagement,” citing a 2015 CATO Institute article. The CATO article provides no support for that claim. A handful of states did have public banks in the early 1800s, but no systematic analysis was ever published. Some did very well. We don’t know why these banks failed. It could have been due to speculation by “public” banks that had majority private ownership, opposition from big banks, or recurrent recessions that caused many private banks to fail.
Also, Public banks would comply with federal (Fed) regulations to protect banks but for stated reasons should not be required to join the FDIC or to provide 102% collateral for its own deposits.