CommentaryA review of US history demonstrates state and federal-level efforts to address financial issues affecting the poor, either by partnering with the private-sector or by encouraging the formation of non-profit entities designed to compete directly with the private-sector. Historically, such efforts have failed. A private-sector entity, for example, simply does not prioritize the needs of the poor since it does not see profit to be gained from that segment of the population. On the other hand, a non-profit entity may begin its banking efforts with good intentions, but because it must finally compete directly with a private-sector entity more financially powerful and influential than itself, the non-profit entity likely feels pressured to adopt private-sector-like methods. In both of these likely series of events, banking in the interests of the poor is ignored. However, it might surprise you that not all banks in the US follow the aforementioned examples: a banking system that both has a high approval rating from its citizens and serves the financial needs of all within the state already exists in the US in North Dakota. The banking model in North Dakota is a state sponsorship bank used by the Bank of North Dakota (BND). The advantages of this banking model should be adopted and used by other states in the US.
If implemented across the US, the BND model would grant public-sector banking entities the leverage power to stand against private-sector entities, and thereby successfully see to it that working-class individuals have the opportunity to benefit in banking where previous systems have failed. In the past, the government tried to use or encourage non-profit entities like Savings and Loans and Credit Unions to fulfill this task. However, the private-sector historically had the upper hand against these non-profit entities because the government was merely tangentially involved in empowering the non-profits and did not economically back them. The non-profit entities largely had to fend for themselves without the economic or institutional power of private-sector banks, and hence experienced economic pressure from them. The non-profit entities felt that the best way to survive was to cater to the same clientele as the private-sector banks, which resulted directly in a frustration of the non-profit entities’ mission to serve the economically under-served. In a state-sponsored bank system, however, the power of a state government would be a fair countervailing force to a private banking entity, because the state would have sufficient power and adequate economic funding to better match and resist pressure from the private banking entities.
Logistically under the BND model, the state sets up the bank with initial funding, and then runs the bank by using the money of the initial funding in order to fund loans for small businesses, home ownership, and even student loans. This model has been successful in North Dakota. There, the state only allows the BND to lend money to small community banks, thereby funding banks with which the public has the most contact. Under my proposal, the BND model would be expanded to include a retail banking component to supplement the main feature.
Unlike the majority of states with few banking options (due to typical and massive consolidations of private banking interests), North Dakota proves the exception: it has a thriving community banking sector. A retail banking option within the state sponsorship model would serve and function as do the smaller community banks in North Dakota. Most states are dominated by five or six big private banks. If, however, the state-sponsored bank allowed those private banks to appropriate-out the money to the community, it is doubtful that the needs of the community would truly and effectively be served (as the banks would still be large, multi-national, serve a rich clientele, and therefore unable to serve the under-served).
In contrast to the big multi-national banks, the community banker knows far better the needs of the community because he or she lives there. For the state to replicate the substance of the community banking system, it would have to set up community banking entities in various parts of the state, devolving power to a community-level. With power entrusted to the community-level, people may acquire a deeper confidence in simply feeling like the bank is on their side.
Past attempts to address the financial needs of the poor have bent to traditional market pressures, and have thus failed. The BND model faces far less pressure because state governments are large and powerful enough to exert pressure on the banks, as opposed to the other way around. Because state budgets and income are high enough to compete with banks in their states, the financial backing of states gives BND-like banks the ability to operate with a long-term look in mind, and to not be fearful like the non-profit entities. This has proven to be the case with the state government in North Dakota for over 80 years. The state sponsorship bank with a retail banking component would truly be a solution for the people, fulfilling the mission of serving the under-served and the poor with enough backing and confidence to compete with big, private-sector banks.
Keith King is a third-year law student at St. John’s University School of Law. He is a senior staff member on The Journal of Civil Rights and Economic Development and a Junior Fellow at The Center for Labor and Employment Law at St. John’s University School of Law. This past summer he was a legal intern with the Queens County District Attorney’s Office.
Suggested citation: Keith King, A Public Banking Model for the People, JURIST – Student Commentary, Dec. 2, 2015, http://jurist.org/student /2015/12/keith-king-public-banks.php
This article was prepared for publication by Val Merlina, an Assistant Editor for JURIST Commentary. Please direct any questions or comments to her at
