A new memo by Earl Staelin, attorney and Chair of the Rocky Mountain Public Banking Institute, argues that FDIC membership and the holding of 100% collateral generally required for a bank charter are “completely unnecessary for public banks that follow the Bank of North Dakota (BND) model and would substantially undermine their profitability and effectiveness.” As the FDIC has increasingly signaled they will not grant membership to banks owned by the public despite their sound policies, it’s important for lawmakers to be aware that this regulatory burden is intended as a roadblock, not a measure of safety.
Under North Dakota law, all of the state’s revenues must be deposited in the BND. At a minimum, a public bank on that model will probably hold about $100 million in deposits. However, FDIC insurance only covers $250,000 per account. If the public bank has only one depositor, its government, then FDIC insurance covers less than ~1% of its deposits of $100 million. That means FDIC insurance is virtually worthless for such accounts, even if the bank divides up its accounts into a number of accounts of $250,000 or less. This is sufficient reason not to require FDIC membership for a public bank. Also, the Bank of North Dakota has done very well without it.