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Public Banking

Discussions about the economic and financial ramifications of PEAK OIL

Public Banking

Unread postby Zarquon » Tue 03 Dec 2019, 00:53:07

I was surprised when I read that the US, of all places, actually has a successful public bank... in North Dakota, since 1919. And there seems to be some political movement towards Public Banking in the US. And while it doesn't seem likely that it could sink Wall Street, it might

An older discussion in the NYT:
https://www.nytimes.com/roomfordebate/2 ... capitalism

This piece explains IMO pretty well how it works and what North Dakota’s Public Bank does:
https://boss.blogs.nytimes.com/2014/03/ ... usinesses/

Another summary:
https://ilsr.org/rule/bank-of-north-dakota-2/

BND functions mainly as a “banker’s bank” — meaning that most of its lending is done in partnership with local banks and credit unions. About half of the bank’s $3.9 billion loan portfolio consists of business and agricultural loans that are originated by a local financial institution and funded in part by BND. By participating in these loans, BND expands the lending capacity of North Dakota’s community banks, giving them added strength in competing against big out-of-state banks.

The remainder of BND’s loan portfolio consists of residential mortgages and student loans. In keeping with its mission to support, rather than compete with, local banks, BND does not make home loans directly. Instead, it provides a secondary market, buying up mortgages originated by the state’s local banks and credit unions.


There even used to be one on a federal level:
https://en.wikipedia.org/wiki/Reconstru ... orporation
The Reconstruction Finance Corporation (RFC) was a government corporation administered by the United States Federal Government between 1932 and 1957 that provided financial support to state and local governments and made loans to banks, railroads, mortgage associations, and other businesses. Its purpose was to boost the country’s confidence and help banks resume daily functions after the start of the Great Depression. The RFC became more prominent under the New Deal and continued to operate through World War II. It was disbanded in 1957, when the US Federal Government concluded that it no longer needed to stimulate lending.

The agency played a major role in recapitalizing banks in the 1930s and it was effective in reducing bank failures and stimulating bank lending.[1] It also helped to set up relief programs that were taken over by the New Deal in 1933.


https://www.theguardian.com/us-news/201 ... -law-ab857
The California governor, Gavin Newsom, on Wednesday signed the Public Banking Act, or AB 857, which will allow city and county governments to create, or sponsor, public banks. Those banks will in turn provide public agencies access to loans at interest rates much lower than they could find at private banks.


The state-owned KfW (Credit Institute for Reconstruction) is Germany's third largest bank:
https://en.wikipedia.org/wiki/KfW
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Re: Public Banking

Unread postby aspera » Tue 03 Dec 2019, 15:12:20

I always thought that when a bank or financial institution declared that it was TBTF that just identified the point at which it should be turned into a utility. One the functions like North Dakota’s Public Bank.
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Re: Public Banking

Unread postby Tanada » Wed 04 Dec 2019, 09:44:42

To my way of thinking this is not a "public" bank, it is a "state" bank in the same guise as the Bank of England or the Bank of Scotland.

A real PUBLIC bank is a true utility like an Electric coop or natural gas distribution company. They have state oversight and regulation but outside of that they operate as a bank.
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Re: Public Banking

Unread postby Zarquon » Wed 04 Dec 2019, 17:07:39

Tanada wrote:To my way of thinking this is not a "public" bank, it is a "state" bank in the same guise as the Bank of England or the Bank of Scotland.


I don't think the Bank of England makes loans to you and me, or to small businesses, unless that small business happens to be a bank.

Anyway, there's a whole load of interesting charts about the state of the US banking industry:
https://ilsr.org/?contenttype=charts-gr ... ve=banking

Image

Image

Image

From the S&L debacle in the mid-eighties to today, the trend is pretty clear. And according to the analysis on that site, new regulations after the 2008 debacle made it even harder for smaller banks to survive, while favoring the big boys. That doesn't look healthy to me. Not at all.
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Re: Public Banking

Unread postby Cog » Wed 04 Dec 2019, 17:10:01

aspera wrote:I always thought that when a bank or financial institution declared that it was TBTF that just identified the point at which it should be turned into a utility. One the functions like North Dakota’s Public Bank.


As if a politician can run a bank better than a CEO. LOL I want some of what you are smoking.
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Re: Public Banking

Unread postby yellowcanoe » Wed 04 Dec 2019, 19:50:21

The term Public Banking reminds me of Savings and Loans Associations which were not-for-profit cooperative institutions. The role that S&L's played at one time in helping working class people finance homes is illustrated in the 1946 movie It's a Wonderful Life starring James Stewart.
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Re: Public Banking

Unread postby Outcast_Searcher » Wed 04 Dec 2019, 23:54:25

yellowcanoe wrote:The term Public Banking reminds me of Savings and Loans Associations which were not-for-profit cooperative institutions. The role that S&L's played at one time in helping working class people finance homes is illustrated in the 1946 movie It's a Wonderful Life starring James Stewart.

Of course, in the real world, the S&L's didn't work out so well, requiring massive bailouts in 1989.

https://www.thebalance.com/savings-and- ... st-3306035

The world is a competitive place. Managing risk is needed. Acting like the S&L's are wonderful by referring to a 70+ year old popular Jimmy Stewart movie isn't exactly great objective analysis.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Public Banking

Unread postby aspera » Thu 05 Dec 2019, 02:05:40

Cog wrote:As if a politician can run a bank better than a CEO. LOL.

Well, if politicians ran the utilities in my community then I'd worry. But they don't. Trained professionals do the running. That seems to be the norm in my neck of the woods.

I'd be surprised to learn that the North Dakota Public Bank isn't run by trained professionals. But I did a quick search to see what turned up.

A recent annual report is at: bnd.nd.gov/pdf/2016_bnd_annual_report.pdf

I'm not a regular reader of bank annual reports so I can't tell if it's run better, worse, or the same as a non-state bank. It does list the members of its advisory board and executive committee (p. 19). If someone wanted to check if the bank was run by politicians, then they could follow up on these names. I just checked on the CEO and president.

The current president and CEO is Eric Hardmeyer. He's a Mott, North Dakota native, and a graduate of the University of North Dakota (doesn't say what his degrees are in). He joined the bank in 1985 as a loan officer. He was named President and CEO in 2001. Initial impression: He doesn't sound at all like a politician.

Regulatory oversight is by state politicians (given that it's a state institution, this would be expected). The North Dakota Industrial Commission oversees several separate state programs, including the Bank of North Dakota. By law, it has three members: the Attorney General, Agriculture Commissioner, and the Governor.

The bank was founded in 1919. So it's had a full century to fail from incompetent management and/or faulty political oversight, but hasn't.

Tentative summary: A state/public bank. Professionally run. Century old. Solvent.

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Re: Public Banking

Unread postby Zarquon » Thu 05 Dec 2019, 02:32:19

You forgot one: it outperformed Wall Street.
https://www.publicbankingpa.org/index.p ... all-street

"It is more profitable than Goldman Sachs Group Inc., has a better credit rating than J.P. Morgan Chase & Co. and hasn’t seen profit growth drop since 2003.
...
Its total assets have more than doubled, to $6.9 billion last year from $2.8 billion in 2007. By contrast, assets of the much bigger Bank of America Corp. have grown much more slowly, to $2.1 trillion from $1.7 trillion in that period.

Return on equity, a measure of profitability, is 18.56%, about 70% higher than those at Goldman Sachs and J.P. Morgan. . . ."

LOL indeed.
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Re: Public Banking

Unread postby Zarquon » Thu 05 Dec 2019, 02:41:06

And didn't someone mention the KfW?

The state-owned KfW (Credit Institute for Reconstruction) is Germany's third largest bank:
https://en.wikipedia.org/wiki/KfW


Revenue €76.5 billion (2017)
Operating income €1.669 billion (2017)
Net income €1.427 billion (2017)
Total assets €472.3 billion (2017)
Total equity €28.7 billion (2017)
Owner Federal Republic of Germany (80%)
States of Germany (20%)
Number of employees 6,113 (2017)

But then, Germany is known as Western Europe's North Korea. A failed socialist wonderland. You know, collapsing bridges, the homeless sleeping in tent cities, drug epidemics. Good thing that Wall Street banks are lobbying hard to expand their business there. Maybe they can bring some of that magic to Germany, it's sorely needed.
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Re: Public Banking

Unread postby Tanada » Thu 05 Dec 2019, 13:42:45

Outcast_Searcher wrote:
yellowcanoe wrote:The term Public Banking reminds me of Savings and Loans Associations which were not-for-profit cooperative institutions. The role that S&L's played at one time in helping working class people finance homes is illustrated in the 1946 movie It's a Wonderful Life starring James Stewart.

Of course, in the real world, the S&L's didn't work out so well, requiring massive bailouts in 1989.

https://www.thebalance.com/savings-and- ... st-3306035

The world is a competitive place. Managing risk is needed. Acting like the S&L's are wonderful by referring to a 70+ year old popular Jimmy Stewart movie isn't exactly great objective analysis.


S&L coops did just fine until Congress changed the regulations and allowed them to invest in risky things like junk bonds in pursuit of higher profit margins. Unfortunately we all know how that worked out, don't we?

That is actually akin to what I was saying about properly regulated. A bank should not be in business to maximize profit if it is a necessary part of the economy like electric and natural gas utilities. Those utility businesses are operated under heavy regulation that limits their opportunity for massive profits, but at the same time grants them monopoly operation in a given territory. Economists insist banking is vital to keeping a healthy economy the same way access to utility services is, so IMO we should treat it as a utility service, not a 'regular' business. In fact in many ways we already treat banks as specially regulated businesses, we just leave huge gaps for profit seeking behavior in the regulatory structure. If it were all the Banks money or the bank Shareholders money that would be fine and dandy, but it is the account depositors money in most cases that is adversely affected.
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