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?