Maine public banking advocate Randall Parr continues his productive output answering critics of public banks. Will local banks with state deposits suffer losses if those deposits are redeposited into a state-owned bank? What would be the impact of a public bank on the state's economic health? On its poverty rate? Would creating a state-owned bank be costly? How would it be funded? Parr offers practical, documented answers to these questions in the piece we are reprinting below.
Public banks, which exist over 40% of Earth, including Germany, Switzerland, India, China, and Brazil, are owned and operated by governments. Reportedly employing 168 workers, Bank of North Dakota is the only U. S. state-owned bank. Downturns, such as the 2008 panic, affected areas served by public banks far less than those served by privately-owned banks. Public banks act in the common interest, while private banks maximize profit with less regard for public good. A future Maine state-owned bank, modeled on Bank of North Dakota,could provide relief for citizens suffering from negative equity, excessive credit card debt, extortionate taxation, extravagant student debt, inequality, and usury that endangers the economy. Like Bank of North Dakota, it could be incorporated as "State of Maine doing business asMaine State Bank (or whatever other name it is given.)" Concerns that creating a public bank results in eliminating the Finance Authority Maine are unjustified. A state-owned bank does not require that any existing state institution be eliminated.
An envisioned state-owned bank could provide programs to renovate and reoccupy derelict vacant properties, provide currently unavailable residential, education, commercial, industrial, commercial fishing, forestry loans, real estate-backed mortgages, health financing, chattel-backed loans,, and depository services for Maine instrumentalities1 and political subdivisions. It could act as a correspondent bank for Maine community banks, reducing public debt service costs, providing credit lines, escrow services, participation interests, transfer agency services, clearinghouse services, treasury services, trust services, bond registration services, and checking accounts. A state-owned bank could provide working capital loans, community water loans, farm financing, all-inclusive elderly care financing, infrastructure, conservation, aquaculture, microfinance, ecotourism, recreation, regional enterprise incubator financing, solar energy, wind energy, geothermal energy, tidal energy, heat pump energy financing, and public utility financing.
State-owned banks do not compete with local banks; they partner with them. Local banks originate and assess risk of financing projects before participating with state-owned banks to make projects happen. This increases local bank profitability, as it has in North Dakota, whose average bank return on equity is 4th highest of 50 states, while Maine, without public banks, is near the bottom. Criticism that state-owned banks compete with local banks is false.
When state agencies deposit money in private banks, they are lending them money. Bank deposits are assets to depositors and liabilities to banks. Deposits allow local banks to boost lending and expand profits. To provide capital for a state-owned bank, Maine institutions could deposit at least 30 percent of their cash into it, by law. Under simulation assumptions modeled on the Federal Reserve Bank-Chicago's publication "Modern Money Mechanics,2" assuming 70% of reserves are lent in Maine, 30% of Maine cash in a public state-owned bank could create a new job for each currently estimated unemployed worker, theoretically eliminating Maine's unemployment3. The boost provided from income of these added jobs would reduce income inequality, cut state budget shortfalls, and lower general assistance needs.
Concern was expressed that local banks with state deposits would suffer losses when state deposits were withdrawn and redeposited into a state-owned bank4. This could be avoided in two ways: Since only 30% of state cash will be put in the state bank, local bank deposits could remain in the 70% that is not deposited into the state bank. A second solution is that, upon creation, the state bank could deposit an equal amount back into the local banks from which state agencies withdrew it. The public bank governing board and others could work out a solution without long term dependency of community banks on government deposits. Out-of-state banks, securities, bonds, and commercial paper held by Maine taxpayers should not be included because they do not contribute to the Maine economy.
Like North Dakota's state-owned bank, the envisioned Maine state-owned bank would be regulated by the Federal Home Loan Bank, the Federal Reserve, and the Maine Bureau of Financial Institutions. It could partner with other state institutions, political subdivisions, and local banks. A Maine State-owned bank would be accountable to Maine citizens with oversight from its Board of Directors, its Advisory Board, the State Auditor and the Maine Legislature. Critics' assertions that it would be unregulated, and answer only to itself were false.
A Maine State-owned bank would not be part of the Federal Deposit Insurance Corporation. Its deposits would be backed by the full faith, credit and resources of the State of Maine, whose net worth was about $24 Billion in 2012. Bank of North Dakota is not a FDIC member. Critics assertions that lack of FDIC membership would make the public bank more risky were false. BND has never been bailed out.
Maine's State-owned Public Bank missions include enhancing Maine enterprises' success, raising funds, providing capital for business expansion, employing workers, capturing markets, boosting liquidity, and expanding revenues. Maine citizens' welfare depend on their ability to have sustainable livelihoods in successful enterprises that do not deplete the common wealth on which the public depends.
The envisioned state bank could pay its way without overburdening taxpayers. Funds received from successful capital lending programs could pay public banking costs. If North Dakota success is replicated in Maine, the State Bank could also return profits to the Maine Treasury, allowing Maine to reduce its extortionate taxes. Employing more working people, raising incomes. cutting taxes for the 99%. reducing inequality would boost economic growth. Greater opportunities in Maine could curtail the endemic outflow of young people and stabilize the economy.
Nobel Prize-winning economist Muhammad Yunus created microfinance poverty reduction programs, making miniscule loans to micro-enterprises, minor businesses managed and served by low income people in poor areas with inadequate business infrastructures. To reduce poverty in Maine a public bank could learn, experiment with, and emulate, microfinance techniques of Dr. Yunus. 5 One in every three children in Maine lives in poverty, according to studies.6
The public bank would have neither branch offices, nor automatic teller machines. It could make second mortgages, make loans originated by community banks, purchase and sell public bonds, refinance and repurchase loans. It would not finance unsustainable fossil fuel7 or nuclear energy8, focusing on renewable sustainable energy projects with low environmental impact. It would not finance projects that harm wildlife, conservation, natural resources, or the environment. Criticism that its projects would harm the environment were untrue.
Goals of Maine State-owned public bank include improving living standards, stabilizing property values, and responding quickly to external economic threats, which undermine local economies, such as weather disasters, international market recessions, and major enterprise closings. A Maine state-owned bank goal is to provide the means, resources and tools to allow young residents to realize their dreams.
State-owned bank objectives are shielding Maine from future cyclical downturns, like the 2008 panic, and protecting Maine taxpayers' assets from future financial collapses. History can instruct us about hazards to avoid. By law the Maine State bank should not engage in financing corporate mergers, shadow banking, speculation, arbitrage, short selling, stock purchases, and off-balance sheet structured derivatives trading that could harm both the Maine economy and the state bank. A state-owned bank should not merge with, be acquired by, or buy other enterprises, nor engage in securitized derivatives trading, not finance large subdivisions that transform forest, mountains or farm land into vast areas of sprawl. It should provide capital to preserve wildlife habitats. The public bank should not engage in bets on future events that resulted in the 2008 financial collapse, due to the high risk to public taxpayer funds. It should be a safe place to keep taxpayer funds.
The bill to create a Maine State-owned Public Bank, was erroneously sent to the Joint Insurance and Financial Services Committee, which focuses on regulating financial and insurance markets. The Maine Legislature Joint Labor, Commerce, Research, and Economic Development committee would have been better, since public banks create jobs, expand income, raise tax revenue, and increase wages. IFS Committee members heard false, unfavorable misinformation about the public bank in 2015, as they did in 2013. I could not rebut the fallacious testimony because, in Maine Legislature's procedures, critics have the last word and no witness can testify twice. The bill was predictably regarded unfavorably, with divided opinions, due to unchallenged9 false criticism.
The cost to create a state bank would merely involve redirecting current assets now deposited by Maine from banks in France, England, Japan, Canada, Wall Street and elsewhere into our new state-owned bank in Maine. Fostering cooperative working partnerships, improving livelihoods, enhancing quality of life, and raising hope among stakeholders for Maine's future are elements of the State-owned public bank vision. Maine state-owned bank core values are accountability, sustainability, partnership, transparency, and community. Critics assertions that it would cost millions to create a public bank were false.
Mainers would be able to live more independently in greater environmental harmony with a public bank supporting our economy. Budget projections, which forecast red ink for 2016 and 2017, would be in the black today if Maine had created a state-owned bank in 2013.
If we had a state bank, instead of discussing tax hikes to balance the budget today we could be cutting taxes. Instead of budget cuts we could be raising funding, because banks create money when they lend it,. People interested in supporting public banking may contactMainePublicbanking.org or OccupyingANewMaineEconomy.org. Maine legislators who want a complimentary copy of the book: Occupying A New Maine Economy - Creating a State-owned Bank should reply to this email and indicate mailing address if different from state house records. (1 per person, please.) The facts above are mine, do not represent any organization or group; and everything is true to my best knowledge.
With Best Regards,
1 "Instrumentalities" are defined as corporations and institutions owned by the state, such as University of Maine system.
3 Occupying a New Maine Economy, Creating a state-owned bank, September, 2014, Chapter 13.
4 This concern was raised at a public hearing on a public banking bill with the Joint Insurance and Financial Services Committee of the Maine Legislature, Augusta, Maine..
5 Dr. Muhammad Yunus, author of the book "Creating a World without Poverty" said "“When we want to help the poor, we usually offer them charity. Most often we use charity to avoid recognizing the problem and finding the solution for it. Charity becomes a way to shrug off our responsibility. But charity is no solution to poverty. Charity only perpetuates poverty by taking the initiative away from the poor. Charity allows us to go ahead with our own lives without worrying about the lives of the poor. Charity appeases our consciences.”
― Muhammad Yunus, Banker to the Poor: Micro-Lending and the Battle Against World Poverty
7 Fossil fuel (oil, coal, and gas) combustion increase carbon in the atmosphere beyond levels sustainable for life...
8 Nuclear energy creates permanent radioactive by-products which are destructive to human life and cannot be altered.
9 Unchallenged because it couldn't be challenged. Opponents of bills always have the last word.