In North Dakota, Local News Shows Subtle Power of Public Bank

Jun 22, 2015.

At PBI, we tend to cover a lot of global and national stories about the problems of private banking and its public alternatives. But some of the most important stories about the power of public banks are local. Two recent stories in the North Dakota media demonstrate what the Bank of North Dakota, the nation’s only public bank, does for that state.

Williston, North Dakota, is the county seat of Williams County, with a population of just over 20,000–and it’s the sixth largest city in North Dakota, which gives you an idea of how rural the state really is (and, consequently, how important it is that financing options for public goods, farms, and small businesses be efficient and portable). Williston’s economy is driven by a combination of agriculture and oil, both industries in North Dakota whose infrastructure benefits from regular attention by the BND. Writing for the Williston Herald, Melissa Krause reported on June 8 that the local school district has proposed a new school, a K-12 consolidated facility projected to cost $48.5 million. The tax base from commercial property and utilities will account for 75% of those costs. The rest would have to come from residents, but this is where the Bank of North Dakota comes in–the BND has offered to loan money for construction at an incredible 1-2% interest, a historic low. “We are hitting the situation at a perfect storm,” said school superintendent Rob Turner, who is “delighted” about the BND’s interest rates.

Compare this to the Napa Valley Unified School District in California, which in 2009 took out a $22 million loan to build a high school, financed through capital appreciation bonds. By 2049, when the debt is paid, the $22 million loan will have cost taxpayers $154 million.

But another important role for the BND is in protecting the integrity of community banks in North Dakota. Because of the BND, North Dakota has the lowest community bank closure rate, and the strongest community banks overall, in the nation. So when I read recently that Choice Financial, a Fargo-based community banking organization, was making plans to acquire more North Dakota community banks, I was concerned. Acquisitions and consolidations scare me; they smell too much like predatory capitalism.

But out of over seventy community financial institutions in North Dakota, only four have been purchased in the last five years, compared to the national rate of 25% acquisition for community banks. Again, the BND helps community banks in North Dakota stay afloat and independent, and the statistics are continuously overwhelming. And why are community banks important? I usually offer up this list of reasons:

1. “Community banks focus attention on the needs of local families and businesses.”

2. “Community banks use local deposits to make loans to the neighborhoods where their depositors live and work.”

3. “Community bank officers are generally accessible to their customers on site with decisions on loans being made locally.”

4. “Community bank employees are typically deeply involved in local community affairs.”

5. “Community banks are willing to consider important attributes such as a person’s character when making loans.”

6. “Community banks are themselves small businesses, so they understand the needs of small business owners.”

7. “Community banks’ boards of directors are made up of local citizens who want to advance the interests of the towns and cities where they live and the bank does business.”

The Bank of North Dakota, a public bank without shareholders and run by the state, makes local communities and small banks in North Dakota stronger and more economically healthy. It’s that simple.

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