How to buck the trend – one good American bank

Uniquely in the US, the State of North Dakota owns its own bank. Quakers introduced public banking in their original colony of Pennsylvania, but North Dakota is the only state to have preserved the idea. It founded the Bank of North Dakota (BND) in 1919 to ensure a dependable supply of affordable credit for its farmers, ranchers and businesses, and is still thriving. Today, North Dakota is the only American state that can show a major budget surplus. It makes low interest loans to students, existing small businesses and start-ups, and it has the lowest unemployment and default rates in the country.

So how does it work? All the state’s revenues are deposited in the BND, which pays only one dividend to its single joint shareholder – the people of the state. It has no private shareholders who seek short-term profits as their highest priority, but returns its profits to the general fund of the public entity. It is in fact what is now called a social enterprise. Our own Co-op bank works in the same way. So has the Post Office until now, though with privatisation that is set to change.

People seldom realise that private banks such as Barclays, RBS etc charge interest to themselves. This means that any project they back carries an interest cost of, on average, 50%. Theoretically, this adds to the bank’s profit, but it racks up the cost to the borrower, who is not thinking theoretically but in terms of real, hard-earned cash. By-passing this profit-making mechanism has worked very well in North Dakota, which in the past fifteen years, despite its small population and relatively small turnover, has returned over $350 million to the state’s general fund. While the Federal Reserve has announced that the Fed will give no help to state authorities struggling with commitments and debt, North Dakota has found no need to ask for help, or to increase its local taxes or cut vital public services. It is doing very nicely, thank you.

Why doesn’t the US government – and our own – look at this as a viable way to solve the financial problems? Basically, because the cats’ cradle of private profit is too big and tangled. There were suggestions after the collapse of RBS that it should be reinvented as a fully state-owned bank with the Scottish community as its joint shareholders, but that was too revolutionary an idea to be considered. OK, then. Let’s all shift to the Co-op Bank and stop playing the mouse in this fat-cat game. Tom and Jerry it ain’t.