Apr 9, 2015.
LD 24 would create a Maine State Bank. as well as allow the creation of county and city-run banks. LD 14 provides that the Maine State Bank would come into existence on July 1, 2017, provided that it had capital of $20,000,000. The bill further provides for a quarterly examination of the Bank by the Department of Professional and Financial Regulation, as well as a state audit every two years.
Representative Dianne Russell gave a moving speech in February which, combined with other efforts, was instrumental in getting LD 24 out of committee and onto the legislative agenda for general consideration. Now, advocates in the state are in high gear answering the inevitable wave of objections that lobbyists for big Wall Street banks routinely lob at these proposals. Randall Parr, who has been instrumental in growing the public banking movement in Maine for several years now, has compiled and answered those objections. We are reposting that work here.
Critics of the public bank bill, LD24. have made many statements in opposition to a state-owned bank. We responded to some of them below.
Critics say Maine does not need a public state bank.
North Dakota’s economy has been far stronger than Maine’s. North Dakota’s economic growth, per capita income, bank profitability, loan delinquency rates, foreclosure rates, unemployment rate, tax burden, property value stability, state budget surpluses, and upward mobility have exceeded Maine’s. Young people are outmigrating from Maine because of poor economic opportunity in a stagnant economy. Maine’s budget forecasts have fallen into chronic shortfalls, Part of the reason for Maine’s slack economy and lower income is inadequate liquidity. Maine’s economic growth has been lower than North Dakota because North Dakota’s state-owned bank lifts its economy and creates new opportunities with enterprise loans that add dollars to the North Dakota money supply. Banks create money when they lend it. Maine does not have a public bank to do this.
A state-owned bank would not be regulated; it would only answer to itself.
Not True. Bank of North Dakota, on which the Maine state public bank would be modeled, is supervised by many regulators, including North Dakota’s Department of Financial Institutions, the U. S. Federal Reserve, Federal Home Loan bank and North Dakota Industrial Commission. The envisioned Maine State Bank would answer to its governing board, its advisory board. the State Auditor, Maine Bureau of Financial Institutions, U. S. Federal Reserve system, U. S. Federal Home Loan bank, and would be overseen by the Maine Legislature. Contrary to critics’ testimonies, the Maine state-owned bank would answer to others, and would be regulated, like Bank of North Dakota is.
Creating a state-owned bank would cost too much money. Maine can’t afford it.
If a state-owned bank is modeled on North Dakota, some of Maine’s instrumentalities’ cash (30% for example) could be deposited in it. Beyond this, creating a state-owned bank would not need to cost Maine taxpayers anything. A state public bank could save taxpayers hundreds of millions in annual debt service costs, because state-owned cash could free state-owned bank lending at low interest rates without borrowing money from private banks, leaving funds for bank administration costs. Bank of North Dakota has $6.9 Billion in assets and returns 18% per year on equity to its taxpayers. North Dakota is smaller than two thirds the population of Maine. Banks create new money when they lend it.
Maine funds would be at risk because a state owned bank would not have deposit insurance, such as Federal Deposit Insurance Corporation [FDIC].
Lack of FDIC deposit insurance would not increase Public Bank risk. FDIC does not insure all Maine deposits in private banks now, only the first $250,000 of each deposit. Many Maine accounts in private banks exceed $250,000, and are uninsured. Maine also has uninsured foreign bank accounts, uninsured bonds and uninsured securities. Maine state net worth is more than enough backing for a state-owned bank. If a Maine state-owned bank joined FDIC, it would have to pay FDIC premiums and surrender control over the state bank to a federal agency, getting almost nothing in return. FDIC deposit insurance would not reduce Maine State-owned bank risk. It is a bad idea for a state-owned bank to join FDIC. FDIC was created by U S Congress after 1933 nationwide bank failures. Bank of North Dakota created in 1919 did not join and has never been a member of FDIC. The Supreme Court sanctioned the right of states to create public banks after Bank of North Dakota constitutionality was challenged.
Opponents said that Maine has a healthy banking sector now.
Why is Maine’s Bank profitability one of the worst in the nation? Why does Maine have one of the highest loan delinquency rates? Why does Maine have one of the highest foreclosure rates? Contrary to their portrayal, Maine’s banking sector could do better.. Defunct Millinocket area paper mills are creating ghost towns and a closed Bucksport mill has cost the state jobs and income. Where was the banking sector in these paper mill closures? Where was FAME in these paper mill closures? Where was the Maine Department of Economic and Community Development in these paper mill closures? Where was Maine Development Foundation in these paper mill closures? Were they unable, or unwilling, to prevent these towns, and the state, from losing major industries?
A Maine public bank would give risky loans.
The envisioned Maine state-owned bank would be modeled on Bank of North Dakota. If Bank of North Dakota loans were too risky, during the past 96 years, eventually they would have failed and Bank of North Dakota would lose money.. The opposite is true. After 96 years, Bank of North Dakota earns almost 20% return on equity annually. North Dakota community banks are far more profitable than Maine banks. This would not be true if North Dakota loans were too risky. Community banks in North Dakota which originate Bank of North Dakota loans assess project risks. Maine’s public bank would operate similarly.
A state-owned bank would compete with Maine community banks.
This is false. A Maine state-owned bank would NOT compete with community banks. An envisioned Maine public bank, modeled on Bank of North Dakota, uses community banks to originate its partnership loans, so community banks can earn more. North Dakota bank profitability is ranked 4th highest of 50 states, while Maine bank profitability is 46th, 5th lowest profitability, of 50 states..[FDIC.] North Dakota has lowest loan delinquency of all states, while Maine is 35th from lowest in loan delinquency of 50. North Dakota has the 2nd lowest loan foreclosure rate of 50 states in the U. S while Maine has 4th highest loan foreclosure rate of 50 states.. The banking sector in North Dakota is much stronger and more profitable than Maine banks because of its public bank, Bank of North Dakota. State-owned public banks strengthen community banks in their states.
Access to capital is not an issue for Maine at this time.
Local businesses report that they do not have adequate access to capital. Banks slowed lending substantially across the U. S. after the 2008 financial crisis, Bank of North Dakota increased lending in its state to offset this trend, and, as a result, North Dakota avoided the recession that struck the other 49 states. A Philadelphia Federal Reserve Bank chart shows North Dakota Economic Activity with the only increase of the 50 states since December 2007, while Maine was 32d of 50 states with a decline of over 6%. Other Public Bank benefits are: reducing the state’s cost of debt service payments on borrowing from private banks, expanding liquidity so that its economy can prosper, safeguarding Maine capital against an insecure international financial system and providing non-tax government revenue to pay for costs of state government.
A state owned public bank would cause instability.
Not true. A state-owned bank would increase stability, not reduce it. Bank of North Dakota has increased stability in North Dakota whose economy was unscathed by the 2008 financial collapse, because Bank of North Dakota provided additional financing when the international financial sector imploded and reduced loans. According to the Maine State Treasurer’s report Maine invests its cash in Wall Street megabanks, Goldman-Sachs, and Citigroup involved in creating the 2008 financial panic trading falsely-high-rated subprime loan-backed securities. BNP Paribas, HSBC, and Bank of Tokyo are foreign megabanks. Fannie Mae and Freddy Mac were also involved in falsely rated derivatives trading, went belly up and were bailed out by taxpayers. Maine holds cash in securities from these risky institutions. Divestment of these and investment into a new public bank would safeguard Maine public funds and benefit the people.
No other state, except North Dakota has created a state owned bank.Â
True. No other state has created a state-owned bank because the financial industry has lobbied ferociously against public banking, making many false statements, whenever public banks have been proposed. Instituting change and making things happen is difficult work.. Rejecting a state-owned bank because no other state, except North Dakota, has created one is a dumb excuse, not a valid reason.
Link to the Text and graphs of Answers to critics of LD24
With Best Regards,
Randall Parr
Maine Public Banking Coalition