Public Banking Model for a State

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"An Introduction to State Owned Banks", In Context TV, Hosts: Ken MacDermotRoe and Gus Cantavero, Video by Gus Cantavero, Engineering and Graphs by BJ MacDermotRoe. Produced by MDR Productions, Inc., website:

Public Banking's Background

Public banking is banking operated in the public interest via institutions owned by the people through their representative governments. Public banks can exist at all levels, from local to state to national or even international. Any governmental body which can meet local banking requirements may, theoretically, create such a financial institution.

Public banking is distinguished from private banking in that its mandate begins with the public's interest. Privately-owned banks, by contrast, have shareholders who generally seek short-term profits as their highest priority. Public banks are able to reduce taxes within their jurisdictions, because their profits are returned to the general fund of the public entity. The costs of public projects undertaken by governmental bodies are also greatly reduced, because public banks do not need to charge interest to themselves. Eliminating interest has been shown to reduce the cost of such projects, on average, by 50%.

When the public interest demands, the mission of public banks is to respond immediately, to assure the long-term prosperity of the community. In the U.S., the Bank of North Dakota is a prime example of such a public bank.

Red River Valley, Recorded by Woody Guthrie

ASCN Recordings

From this valley they say you are going
We will miss your bright eyes and sweet smile
For they say you are taking the sunshine
That has brightened our pathways awhile

Come and sit by my side, if you love me
Do not hasten to bid me adieu
Just remember the Red River Valley
And the cowboy who loved you so true

I've been thinking a long time, my darling
Of the sweet words you never would say
Now, alas, must my fond hopes all vanish
For they say you are gong away

Do you think of the valley you're leaving
O how lonely and how dreary it will be
And do you think of the kind hearts you're breaking
And the pain you are causing to me

They will bury me where you have wandered
Near the hills where the daffodils grow
When you're gone from the Red River Valley
For I can't live without you I know
Grand Forks flood, 1997

Did You Know...?

Public banking was first introduced in America by the Quakers in the original colony of Pennsylvania. Other colonial governments also established publicly-owned banks. The concept was later embraced by the State of North Dakota, the only state to currently own its own bank.

As of the spring of 2010, North Dakota was also the only state sporting a major budget surplus; it had the lowest unemployment and default rates in the country; and it had the most community banks per capita, suggesting that the presence of a state-owned bank has not only not hurt but has helped the local banks.

The BND was founded in 1919 to insure a dependable supply of affordable credit for its farmers, ranchers and businesses.

Without affordable credit, average Americans who do not have substantial wealth cannot make the investments in their families and small businesses necessary to insure a prosperous future.

The Bank of North Dakota makes low interest loans to students, existing small businesses and start-ups. It partners with private banks to provide a secondary market for mortgages and supports local governments by buying municipal bonds.

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.

Most states, with the exception of North Dakota, currently deposit their tax revenues (the public's money) in private Wall Street banks, which use these deposits for their own private gain. This money could be deposited in the state's own bank and used to fund projects and programs that benefit the public over the long term - the very same projects/programs that are currently being cut from state budgets.

The Bank of North Dakota is only one of many public banking models that have developed historically around the world. For most of the twentieth century in Australia, the publicly-owned Commonwealth Bank of Australia was not only the nation’s central bank but engaged in commercial banking, “keeping the other banks honest.” In Alberta, Canada, the publicly-owned Alberta Treasury Branches connect nearly every town in a shared credit system. Public and private banks operate effectively together in many countries, including Switzerland, Germany, India, China and Brazil.

Clearly, states and municipalities have the potential to leverage their revenues to a much greater degree than is currently practiced. The Public Banking Institute has been set up to explore and educate regarding this potential.

Public Banking to the Rescue

How BND Help Save Grand Forks, ND in 1997

Folks in Grand Forks, North Dakota will never forget April 1997, when record flooding of the Red River and major fires devastated the city. They also won't forget that it was Bank of North Dakota--the nation's only bank owned by a state--that put people above profits. The BND rushed to the rescue with financial flexibility and generosity of spirit in the public interest that no privately owned bank could match.

From this valley they say you are leaving.
We will miss your bright eyes and sweet smile,
For they say you are taking the sunshine
That has brightened our pathway a while.

Unlike the cowboy's lament, for Grand Forks, sunshine was part of the problem. Most years, the region's winter snows melt gradually over a span of months. But by mid-March, temperatures had hovered below 40 degrees for four months straight. Ten feet of undiminished accumulated snow pack loomed in the Red River watershed. Beginning March 18th, temperatures suddenly warmed above freezing and remained high for 27 days straight. Runoff from snowmelt swelled the Red River and its tributaries into torrents.1

So come sit by my side if you love me.
Do not hasten to bid me adieu.
Just remember the Red River Valley,
And the cowboy that loves you so true.

The National Weather Service predicted the river would crest at 49 feet, equal to the area's highest previous flood level in modern history. Sandbag dikes, built to handle a flood at that level, protected the town--until they didn't. On April 16 the Red River surged to 49 feet and, in subsequent days, kept rising: 50, 52, 54 feet. On April 18, floodwaters breached a dike, then others.2 All hell broke loose.

Mayor Pat Owens ordered 50,000 people to evacuate3-at the time the largest US evacuation since Sherman's burning of Atlanta, 133 years earlier. But Grand Forks' troubles had only begun. In a turn of events that would make Murphy blush, floodwaters shorted electrical equipment in a downtown building. National news media carried dramatic pictures of firefighters struggling to fight blazes in buildings surrounded by water. Fire spread to apartments where 40 stalwarts had defied Mayor Owens' evacuation order. Emergency workers had to rescue them from both fire and flood before firefighting began. The inferno consumed 11 buildings, 60 apartments, and the Grand Forks Herald, with its 120-year archive.4

The Toll

Incredibly, not a single person in Grand Forks died as a result of these twin disasters. But the town and its sister city, East Grand Forks on the Minnesota side of the river, lay in ruins. Floodwaters covered virtually the entire city and took weeks to fully recede.5 Property losses topped $3.5 billion.6

The flood inundated 16 of 22 local schools, 315 business and a staggering 75% of area homes. In all more than 5,000 businesses were affected by an earlier blizzard plus the flood and fire. Some businesses sustained only minor damage; others were totally destroyed.7

Enter BND - North Dakota's Public Bank

Soon after floodwaters swept through Grand Forks, the state-owned Bank of North Dakota began taking unprecedented action to help families and businesses recover. Led by BND's then-president and CEO John Hoeven--future North Dakota governor and US senator--the bank quickly established nearly $70 million in credit lines:8

· $15 million for the ND Division of Emergency Management

· $10 million for the ND National Guard

· $25 million for the City of Grand Forks

· $12 million for the University of North Dakota, located in Grand Forks

· $7 million allocated to raise the height of a dike at Devil's Lake, about 90 miles west of Grand Forks

BND also launched a Grand Forks disaster relief loan program and allocated $5 million to help other areas affected by the spring floods. With BND leading the way, local financial institutions matched these funds, making available more than $70 million altogether.9

Flooding swept away many jobs, leaving families without a livelihood. BND coordinated with the US Department of Education to ensure forbearance on student loans. The bank also worked closely with the Federal Housing Administration and Veterans Administration to gain forbearance on federally backed home loans and to establish a center where people could apply for federal/state housing assistance. Further, BND worked with the North Dakota Community Foundation to coordinate a disaster relief fund, and the bank served as the fund's deposit base.10

BND didn't stop there. Agriculture has long been a North Dakota economic mainstay. In the Great Depression, BND helped keep families on their farms.11 With the record 1997 spring floods, many farm families again faced financial ruin. BND responded by reducing interest rates on existing Family Farm and Farm Operating programs. Families used these low-interest loans to restructure debt and cover operating losses caused by wet conditions in their fields.12

To help finance the disaster recovery, BND obtained funds at reduced rates from the Federal Home Loan Bank, in turn enabling the publicly-owned bank to pass along cost savings to flood-affected borrowers in the form of lower interest rates.13

Some impacts can be readily measured; others may be deduced. Between the 1997 floods and 2000, Grand Forks lost 3% of its population. Sister city East Grand Forks, right across the river in Minnesota, lost 17% of its population in the same period.14 Coincidence? Or did Grand Forks--one minute away by car--achieve a more rapid, more graceful economic recovery, in part because of what North Dakota's unique, publicly-owned bank accomplished there? Likely, one could also compare the results of BND's efforts to what happened in New Orleans, after hurricane Katrina, and end up with the same answers.

Conclusion: Unparalleled Advantage

In 1997 the people, businesses and institutions of Grand Forks, North Dakota experienced firsthand the unparalleled ability of a publicly-owned bank to place the public interest above all other considerations. Because BND has no shareholders other than the State of North Dakota, it has far-reaching flexibility and, in emergencies like the 1997 flood, can act quickly to catalyze and coordinate resources ranging from federal agencies to local community banks.

No other institution in the wake of 1997's overwhelming disaster combined the credibility, clout, capital, and connections to protect the public interest as BND did for North Dakota families and small businesses.

The same holds true today. People and businesses across America are drowning in unsustainable debt. They face a flood of foreclosures, many with home values that are "underwater." Meanwhile conventional banks keep credit tight, drying up the very resource that businesses need to hire more people and get the economy moving again.

If each state had its own public banking institution, today's drastic situation might be very different.

Just ask anyone in Grand Forks who lived through 1997.

Jim Morrow

Ira Dember

Writing Team, PBI Volunteers


1. "1997 Red River Flood in the United States",

2. Ibid.

3. Ibid.

4. "1997 Red River Flood",

5. Ibid.

6. Ibid.

7. "1997 Red River Flood in the United States",

8. "North Dakota Response to the 1997 Disasters", North Dakota Department of Emergency Services (2007).

9. Ibid.

10. Ibid.

11. "BND Resurgence / The Depression Years", Bank of North Dakota.

12. "North Dakota Response to the 1997 Disasters", North Dakota Department of Emergency Services (2007).

13. Ibid.

14. "1997 Red River Flood in the United States",