Case Statement

What is a Public Bank?

1. A public bank is owned by the people through their representative government: a State, City, County Government or Tribe. It can receive deposits of public funds (taxes, fees, fines and interest earned) from, and make loans to, the representative government that owns it or other governments or banks as determined by its charter.
2. A public bank is operated in the public’s interest. Its profits are returned to its representative government to be used for public purposes. It is not like an incorporated bank owned by stockholders who reap the profits as dividends from their stocks.
3. A New Mexico Public Bank would be chartered by the State of New Mexico, like other local community banks, but the public bank’s mission will be to receive, hold and invest substantial deposits from the State and other governmental units. Deposits would include State income from taxes, fees and fines and any interest earned and could also include some portion of the State’s Sovereign Investment Funds.
4. Because the proposed public bank would not be set up for private bank accounts, it won’t incur the expense of providing retail banking services and products. This will make the public bank more efficient to manage, with less paperwork, fewer expenses and a small professional banking staff.
5. A public bank is able to pay higher interest on its deposits than is paid by national/global banks currently, because it doesn’t payout profits to individual stockholders or pay exorbitant salaries to high level employees.
6. A public bank could lend money to the State or other governmental units at lower interest rates than are presently paid to national/global banks and bonding agencies for the money borrowed. This occurs because global banks and bonding agencies pay profits to their owners and stockholders. A public bank would reinvest some portion of its profits in its own lending ability and could pay some portion of its profits to New Mexico’s general fund.
7. A public bank will keep our community’s money right here at home in New Mexico. Interest paid here and profits earned here stay here, circulating in our State’s economy.
8. A New Mexico Public Bank could partner with local community banks, credit unions, and community development fund institutions (CDFIs) to guarantee or share in local lending. This would make it easier for those institutions to make loans that expand our economy, create jobs and invest in projects that enhance our State.
9. Under the right circumstances, chartered depository banks can put their financial resources to work twice. First, they can issue bank credit (loans) for up to 90% of their qualifying deposits using the fractional reserve system to multiply the value of deposits through the credit created by the loans. Second, those same financial resources are held safely in a bank account earning a little interest. A public bank has many of the same privileges as stockholder-owned incorporated, chartered banks.
10. A public bank CAN and WILL make a profit as a result of its lower operating costs and smaller management team.

Successful Public Banks in the US and Abroad

There are successful management and policy models for public banks throughout the world. Among them:

BANK OF NORTH DAKOTA (BND) “Promoting Agriculture, Commerce and Industry” in North Dakota since 1919, is the only state-owned bank in the nation. It was started by desperately poor farmers who launched the Nonpartisan league to create a local alternative to remaining at the mercy of out-of-state economic powers. Funded initially with a two million dollar investment, it has grown to a consistently profitable seven billion dollar economic powerhouse.

BND has been the major factor in creating a strong, resilient economy in North Dakota long before the recent oil and gas boom. Because North Dakota’s public funds were deposited in BND and invested locally, the State escaped many of the negative financial effects of the great of 2008.

BND works as funding resource in partnership with over one hundred local financial institutions, economic development groups and guaranty agencies. Local financial institutions are thriving because they have an excellent, secure source of credit from BND. There are more community banks per capita in North Dakota than in any other state.

BND’s partnership with those community banks has increased their capacity to make loans to businesses which have grown good jobs for the people of North Dakota.

The people of North Dakota have very good financial terms when it comes time to buy or renovate an existing home and farmers and ranchers have a good friend in BND. When they need a loan to build a home or barn or to invest in their farm or ranch, BND sees this as a priority.

BND is able to respond quickly when natural disasters strike so that rebuilding can begin quickly. In 1997 the Red River flood created tremendous damage to homes, businesses and farms in North Dakota and Minnesota. With the help of BND, North Dakotans were able to quickly rebuild and recover while those on the Minnesota side lacked desperately needed recovery support.

BND manages a major student loan program for its college students. The student loans are at lower interest and more favorable terms than through other programs and help reduce the debt students will have to repay after graduation from college. BND’s student loans are paving the way for a well-educated workforce for its state.

The Bank of American Samoa, originally the Territorial Bank of American Samoa, became the second chartered public bank in the United States in April of 2018.

Tribally Owned Bank2, while not officially designated a public bank, is a wholly owned subsidiary of the Chickasaw Nation, “committed to helping people build better lives.” It has set the stage for other indigenous peoples to establish their own banks with the mission to serve Native peoples. Bank2 was established in 2002 with $7.5 million in assets and by 2014 it had grown to more than $100 million in assets. Bank2’s specific purpose is to serve Native American small businesses and individuals not only across Oklahoma but the entire country. Its special focus is in the Oklahoma City area and the 13-county jurisdictional area of the Chickasaw Nation in south central Oklahoma. It provides banking services to a population that might be unbanked or underbanked. Fifty three percent of Bank2’s clients are Native Americans. A total of 15 percent of Bank2 clients have a household income at or below 80 percent of the area median income. Since its inception Bank2 has significantly impacted small business and has made homeownership a reality for many who would not have been able to secure a mortgage elsewhere. The bank has made hundreds of small business loans totaling $10s of millions. Bank2 has financed over 1,000 housing units and has developed or rehabbed 500 single-family homes. These efforts have benefited the lives of thousands of clients.

THE GERMAN SAVINGS BANKS (Sparkassen Banks) serve as a highly successful example of public banks working independently and cooperatively. There is a Sparkassen (Savings Bank) in nearly every town and village in Germany. Sparkassen banks were established over 200 years ago to ensure that everyone, including the very poor, had access to banking services. Sparkassen banks hold and manage its communities’ public funds. Profits from the bank are invested back into that community. They are part of a cooperative model. Each bank is managed locally and is financially independent, but is also part of a supportive network of other Sparkassen banks that work together to ensure the success of each bank. Savings Banks operate according to commercial principles, but without the aim of profit maximization. This process of investing back into the community and working together has helped create the resilient, stable economy for which Germany is well known.

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