Graphic by Christina Animashaun, courtesy Vox.
As California reshapes its financial landscape, Will Peischel writes a feature article for Vox describing how North Dakota’s farmers a century ago, faced with economic deregulation and extreme income inequality mimicking the conditions of today, solved their economic crisis by establishing their own state-owned bank.
“North Dakota’s fledgling economy [was] vulnerable to the whims of corporate banks. Financial capitals such as Chicago and Minneapolis could inflate farmers’ loan rates or undercut grain prices without fear of reprise. ‘A lot of your economic livelihood would be, for lack of a better word, controlled by out-of-state interests who may not have the best interests of the local producers in mind,’ said David Flynn, the economics and finance department chair at the University of North Dakota.”
“With $8 billion in assets, BND now offers business and student loans along with commercial services. Its purpose, however, continues to distinguish it from modern private banks. ‘When a US bank isn’t interested in going into that type of loan or startup, or thinks it’s too risky, BND would get engaged,’ Flynn said. ‘They could point to this mission and say, ‘We’re helping growth, the growth helps the state.’’”
“That mantra also applies to the local banking ecosystem. Student loans are facilitated directly with BND, but other loans, called participation loans, go through a local financial institution — often with BND support. For example, if someone wants to take out a business loan for $20,000 with a local bank, BND would lend half of the money, $10,000, and minimize the risk for that bank. The result: The individual and local bank or credit union are supported by BND through a single transaction.”