A State-Owned Bank: Is it a good idea?

There have been many articles in the papers recently like the one that appeared in Bloomberg Businessweek last week.  It's about the Bank of North Dakota, the U.S.A.'s only state owned bank.  North Dakota, remarkably enough, has a budget surplus and the credit is flowing to small local business.  This seems largely due to North Dakota's state-owned bank.  The bank does not take consumer deposits, but North Dakota's state agencies are required to put their funds in in the bank.  The funds are used for economic development in the state including student loans, venture capital and disaster relief loans.  The bank gives half of all its profits to the state.

I like the model but the down side, as pointed out by Amy Cortese in her book Locavesting, is that a state-owned bank creates a link between money and politics (although I would suggest that link already exists in a way that politicians benefit from but the citizens do not).  The governor of North Dakota essentially controls the bank because whoever is in office acts as the bank chairman and appoints the bank's advisory board.

Representatives in my home state, Washington, and many other states are launching initiatives to start local banks mostly because of the successes in North Dakota.  According to the Washington State Bank Analysis done by the Center for State Innovation, a Washington State Bank could "could help
create or retain 7,400‐10,700 jobs....could generate roughly 8.2% or about $2.6B in new lending activity" and "could generate dividends for the state starting in year 3."

A group of Democratic leaders introduced House Bill 1320 to the Washington State Legislature in January of 2011.  Progress and a summary for the bill can be found here.

Although the state bank in North Dakota seems to have increased the health and number of banks in North Dakota, many people are wary of the movement toward state-owned banks. The Bloomberg article says, "Democratic and Republican lawmakers in 13 states introduced bills this year to study or start state-run banks....a prospect that does not sit will with commercial lenders. It's 'socialistic' says Camden R. Fine, president of the Independent Community Bankers of America, a Washington-based lobbying group that represents more than 5,000 community banks."

I think we could benefit from a well regulated state-owned banking system.  Perhaps I'm naive, but I think the officials in Washington are interested in the benefit to the local business community and the citizens of our fair state.  What do you think about the prospect of state-owned banks?

Surfer Kyle Theirmann Moves his Money

Kyle Thiermann, a surfer tells us about banking and reminds us:

"You have the power to stop funding the problem and start funding the solution." 

"Through your daily decisions you have the power to Change the World."

Kyle has been responsible for people moving hundreds of millions of dollars out of the big banks into local banks and credit unions.  His website, surfingforchange.com has some great movies of surfing and more excellent information.  

Here's his video on the importance of buying local:

Hooray for Kyle!  He's showing everyone can make a difference.  You too!

Crowdfunding with a Return

A good friend of mine told me he had been playing the investor on Lending Club, a crowdfunding site where people in need of a loan can connect with people (maybe lots of people) willing to lend to them.  He was excited by the fact that he could look at the investment possibilities (people who need a loan) and see their credit history, their story and other information and he could make his own decision about whether or not to lend to them.  So far, he's making an excellent return!

Lending Club was number 20 on Forbes' list of the 100 most promising companies in America. As of the beginning of this month lending club has originated more than $430 million in loans and investors on the site have made more than $36 million in interest.  Sounds pretty good!  No wonder my friend is happy.

Another crowdfunding site that is getting some press these days is CrowdCube. Crowd Cube claims to be the world's first crowd sourced equity finance for private businesses.  The Rushmore Group raised one million pounds sterling in equity financing on the site.  Rushmore Group is the sixth deal to close on Crowd Cube.

It might be possible to do this kind of thing in the United States before too long.  The House Bill that passed in November, The Entrepreneur Access to Capital Act, is now in the Senate.  It's been renamed The Democratizing Access to Capital Act of 2011 and is numbered S1791. Scott Walker, a lawyer wrote an excellent blog post on What StartUps Should Know About the U.S. Crowdfunding Bill. The bill had a hearing in the Senate Banking Committee on December 1st.