The public option for banking: Create city banks for and by the public

In the United States, state and city governments rely on the same private sector banks used by individual consumers for their own banking needs. The famous exception at the state level has long been North Dakota, which operates the publicly-owned Bank of North Dakota. As the Public Banking Institute explains in this primer, it’s easy to see why the model is such a compelling alternative to the traditional Wall Street option:

public-bank-of-north-dakota“The public banking model used by the State of North Dakota is simple – the State of North Dakota is doing business as the Bank of North Dakota (BND). That means all the state’s assets are used to capitalize the BND. By law, all the state’s revenues are also deposited in the Bank. Among other advantages, this gives the BND the ability to participate in loans originated and led by private banks, which then have more flexibility to manage and expand their loan portfolios.

As a public bank, the Bank of North Dakota pays its dividend to its only shareholder – the people of the state. In the past decade, despite its small population and modest volume of economic activity, the Bank of North Dakota has returned over $300 million to the state’s general fund, helping to ensure regular annual surpluses and eliminate the need for drastic tax increases or spending cuts for vital public services.”

To dispel a common myth, the Bank of North Dakota operates more as an institutional “banker’s bank” that partners with private sector banks and enhances their capacity rather than replacing typical retail banks with ATMs and tellers. That’s actually a feature that allows the BND to entice and direct private community banks to make societally beneficial loans and investments, such as lending to college students, in-state small businesses, and clean energy entrepreneurs. In fact, the BND is a key reason why small local banks—the kind that lends to people and businesses often ignored by mega Wall Street banks—are still thriving in North Dakota while fading away nationally.



Moreover, the Bank of North Dakota’s success helps explain why that state’s budget has been weathering the recent economic turmoil unusually well compared to other states. Instead of state revenues stashed in private banks, the funds are deposited in the BND—generating profits that are then plowed back into the bank and state’s general fund rather than Wall Street. In fact, the BND has returned $300 million back to North Dakota taxpayers over the past decade!

Interest in public banking is growing, from states as well as cities like Philadelphia, Seattle, and Santa Fe. For more information and resources, see “The Case for a State-Owned Bank,” (2012); “Municipal Banking: An Overview,” Roosevelt Institute (2016); “Introduction to Public Banking,” Public Banking Institute; and “A Municipal Bank In San Francisco? City Explores Revolutionary New Model,” Huffington Post (2011).