FacebookTwitterGoogle+RedditEmail

State Banks Would Mean Jobs, Credit and Investment

by PETE DOLACK

One of the many problems with the current banking system is that your tax money helps fuel speculation. Unless there is a public bank that your local government can place deposits into, revenues are the playthings of big banks.

Some of that money will go toward investment via loans — at a hefty profit to the bank, of course — but a significant portion will go toward risky, socially harmful speculation. What if these public funds were instead put in a professionally run public bank? There would be more funds available for investment, significant savings on interest costs and more jobs would be created. That is the conclusion of a series of studies examining the issue.

The latest of these studies advocates that a Vermont state-government agency be converted into a state bank, run along the lines of the Bank of North Dakota, the only state bank in the United States. This study, prepared by researchers at the universities of Vermont and Massachusetts for the coalition group Vermonters for a New Economy, concludes that a Vermont public state bank would lead to more than 2,000 new jobs, hundreds of millions of dollars in increased economic output and a significant increase in funds available for investment.

Earlier, separate studies concluded that state banks in Oregon and Washington state would lead to thousands of jobs and hundreds of millions of new revenue. Advocates of a state bank in California believe the creation of a public bank would lead to billions of dollars in benefits there. The Bank of North Dakota turns a profit on behalf of that state’s government while providing investments for local projects — an example that could be replicated elsewhere.

Vermont has a small population similar to North Dakota’s, and the researchers who prepared the Vermonters for a New Economy paper drew on North Dakota’s experience. The paper concludes that a Vermont state bank would result in:

*2,535 new jobs, including more than 1,000 in the first two years.
*$192 million added to the state economy.
*As much as $236 million in new money would be available for credit.
*Savings of almost $100 million from reduced interest costs.

If it acts like a bank, why not make it a bank?

Such achievements would represent a considerable benefit for a small, rural state with 600,000 residents. The paper does not recommend that Vermont start a state bank from scratch, but rather convert an existing state agency, the Vermont Economic Development Authority, into one. The paper said the authority, in conjunction with two other state agencies that provide specialized loans, already carries out many of the functions of a bank. The authority is tasked with “providing loans and other financial support to eligible and qualified Vermont industrial, commercial and agricultural enterprises” by the state legislature, a mission similar to a state bank.

As of now, the Vermont state government deposits its revenues in two commercial banks, TD Bank (based in Toronto) and People’s United Bank (a regional bank based in Connecticut that swallowed a local bank previously used). Those two banks can, and do, use the money deposited by the Vermont government for any purpose its managers desire. Although the paper went out of its way to praise both for their willingness to lend locally, they have little obligation to do so. TD Bank, typical of large financial institutions, is heavily involved in speculation — it has a reported derivatives exposure of $3.8 trillion, a total more than four times more than its assets. There is risk here.

Were the state government to instead place its revenue in a state bank, all the funds (excepting those required to be held as reserves under applicable federal regulations) would be available for local investment, both as loans and for needed public infrastructure projects. Moreover, a state bank could borrow funds from the Federal Reserve at a much lower rate than by borrowing from a commercial bank and, by being able to use funds from its state bank, the government would float fewer bonds, saving on interest payments. The paper said:

“A public bank could direct as much credit as desired within fed reserve requirements, capital ratios, and prudent banking [practices] towards investment in-state lending agencies by partnering with them. A bank can also expand the amount of credit available through leveraging, which the [state] Treasurer and lending agencies cannot do.” [pages 10-11]

The paper calculates that, even with reserve requirements, there would be more than $200 million in new credit available, which could be directed toward useful investment rather than speculation. Because Vermont’s deposited revenue represents a minuscule percentage of TD and People’s United’s assets, and because a state bank would be much more focused on public needs, the proposed state bank’s credit would be in addition to, not a replacement for, commercial banking credit:

“[O]n the question of a public bank creating new credit or not, we find no evidence to support critics, and find that public bank lending will mostly add to existing credit within the state. Furthermore, even if public bank lending simply replaced existing lending by private banks, the results would still be highly beneficial.” [page 22]

What’s good for a small state is good for a bigger state

In addition to the other benefits, the profits from loans would be returned to the state. The Bank of North Dakota routinely produces profits for that state’s government while providing a reliable source of funding for local investment. There have been bills introduced into the Vermont Legislature to study the creation of a state bank, but so far have not advanced due to opposition by the Vermont Bankers Association.

Similar bills have been introduced in other states, which have also faced considerable headwinds, despite (or because of) similar conclusions.

A study by the Center for State Innovation found that a state bank in Oregon could help create or retain 6,900 to 8,800 additional small-business jobs, make $1.3 billion available in new credit and earn profits for the state after only three years. Another study by the same organization focusing on Washington state predicted that a state bank there would created as many as 10,000 small-business jobs, make $2.6 billion available in new credit and also begin turning a profit after three years.

Advocates of a California state bank believe that it would generate $133 billion in credit becoming available for the largest U.S. state. A bill to study this issue was passed by the state legislature, but was vetoed by Governor Jerry Brown. The Bank of North Dakota reported net income of $82 million in 2012 — what would a similar bank return in bigger states?

Ultimately, however, the stranglehold of financiers can not be reformed away. It can only be eliminated by converting all banking into a public utility for the broad benefit of society with speculation firmly prohibited.

Getting to there from here is a long road, but successful public state, provincial and regional banks replicated around the world would set a good example, and demonstrate that the staggering cost of a financial industry that continues to run amok is not a burden that we are forced to live with. If we have no control over the economy and our working lives, democracy is an illusion.

Pete Dolack writes the Systemic Disorder blog. He has been an activist with several groups.

Pete Dolack writes the Systemic Disorder blog and has been an activist with several groups. His book, It’s Not Over: Learning From the Socialist Experiment, is available from Zero Books.

More articles by:
June 27, 2016
Robin Hahnel
Brexit: Establishment Freak Out
James Bradley
Omar’s Motive
Gregory Wilpert – Michael Hudson
How Western Military Interventions Shaped the Brexit Vote
Leonard Peltier
41 Years Since Jumping Bull (But 500 Years of Trauma)
Rev. William Alberts
Orlando: the Latest Victim of Radicalizing American Imperialism
Patrick Cockburn
Brexiteers Have Much in Common With Arab Spring Protesters
Franklin Lamb
How 100 Syrians, 200 Russians and 11 Dogs Out-Witted ISIS and Saved Palmyra
John Grant
Omar Mateen: The Answers are All Around Us
Dean Baker
In the Wake of Brexit Will the EU Finally Turn Away From Austerity?
Ralph Nader
The IRS and the Self-Minimization of Congressman Jason Chaffetz
Johan Galtung
Goodbye UK, Goodbye Great Britain: What Next?
Martha Pskowski
Detained in Dilley: Deportation and Asylum in Texas
Binoy Kampmark
Headaches of Empire: Brexit’s Effect on the United States
Dave Lindorff
Honest Election System Needed to Defeat Ruling Elite
Louisa Willcox
Delisting Grizzly Bears to Save the Endangered Species Act?
Jason Holland
The Tragedy of Nothing
Jeffrey St. Clair
Revolution Reconsidered: a Fragment (Guest Starring Bernard Sanders in the Role of Robespierre)
Weekend Edition
June 24, 2016
Friday - Sunday
John Pilger
A Blow for Peace and Democracy: Why the British Said No to Europe
Pepe Escobar
Goodbye to All That: Why the UK Left the EU
Michael Hudson
Revolts of the Debtors: From Socrates to Ibn Khaldun
Andrew Levine
Summer Spectaculars: Prelude to a Tea Party?
Kshama Sawant
Beyond Bernie: Still Not With Her
Mike Whitney
¡Basta Ya, Brussels! British Voters Reject EU Corporate Slavestate
Tariq Ali
Panic in the House: Brexit as Revolt Against the Political Establishment
Paul Street
Miranda, Obama, and Hamilton: an Orwellian Ménage à Trois for the Neoliberal Age
Ellen Brown
The War on Weed is Winding Down, But Will Monsanto Emerge the Winner?
Gary Leupp
Why God Created the Two-Party System
Conn Hallinan
Brexit Vote: a Very British Affair (But Spain May Rock the Continent)
Ruth Fowler
England, My England
Jeffrey St. Clair
Lines Written on the Occasion of Bernie Sanders’ Announcement of His Intention to Vote for Hillary Clinton
Norman Pollack
Fissures in World Capitalism: the British Vote
Paul Bentley
Mercenary Logic: 12 Dead in Kabul
Binoy Kampmark
Parting Is Such Sweet Joy: Brexit Prevails!
Elliot Sperber
Show Me Your Papers: Supreme Court Legalizes Arbitrary Searches
Jan Oberg
The Brexit Shock: Now It’s All Up in the Air
Nauman Sadiq
Brexit: a Victory for Britain’s Working Class
Brian Cloughley
Murder by Drone: Killing Taxi Drivers in the Name of Freedom
Ramzy Baroud
How Israel Uses Water as a Weapon of War
Brad Evans – Henry Giroux
The Violence of Forgetting
Ben Debney
Homophobia and the Conservative Victim Complex
Margaret Kimberley
The Orlando Massacre and US Foreign Policy
David Rosen
Americans Work Too Long for Too Little
Murray Dobbin
Do We Really Want a War With Russia?
Kathy Kelly
What’s at Stake
Louis Yako
I Have Nothing “Newsworthy” to Report this Week
FacebookTwitterGoogle+RedditEmail