Tag Archives: community banks

Regulation Is Killing Community Banks. Public Ownership Can Revive Them.

 

Ellen Brown | Web of Debt | Oct 30, 2017

Crushing regulations are driving small banks to sell out to the megabanks, a consolidation process that appears to be intentional. Publicly owned banks can help avoid that trend and keep credit flowing in local economies.

At his confirmation hearing in January 2017, Treasury Secretary Stephen Mnuchin said, “regulation is killing community banks.” If the process is not reversed, he warned, we could “end up in a world where we have four big banks in this country.” That would be bad for both jobs and the economy. “I think that we all appreciate the engine of growth is with small and medium-sized businesses,” said Mnuchin. “We’re losing the ability for small- and medium-sized banks to make good loans to small and medium-sized businesses in the community, where they understand those credit risks better than anybody else.”

The number of U.S. banks with assets under $100 million dropped from 13,000 in 1995 to under 1,900 in 2014. The regulatory burden imposed by the 2010 Dodd-Frank Act exacerbated this trend, with community banks losing market share at double the rate during the four years after 2010 as in the four years before. But the number had already dropped to only 2,625 in 2010. What happened between 1995 and 2010?

Six weeks after Sept. 11, 2001, the 1,100 page Patriot Act was dropped on congressional legislators, who were required to vote on it the next day. The Patriot Act added provisions to the 1970 Bank Secrecy Act that not only expanded the federal government’s wiretapping and surveillance powers but outlawed the funding of terrorism, imposing greater scrutiny on banks and stiff criminal penalties for non-compliance. Banks must now collect and verify customer-provided information, check names of customers against lists of known or suspected terrorists, determine risk levels posed by customers, and report suspicious persons, organizations and transactions. One small banker complained that banks have been turned into spies secretly reporting to the federal government. If they fail to comply, they can face stiff enforcement actions, whether or not actual money-laundering crimes are alleged.

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In 2010, one small New Jersey bank pleaded guilty to conspiracy to violate the Bank Secrecy Act and was fined $5 million for failure to file suspicious-activity and cash-transaction reports. The bank was acquired a few months later by another bank. Another small New Jersey bank was ordered to shut down a large international wire transfer business because of deficiencies in monitoring for suspicious transactions. It closed its doors after it was hit with $8 million in fines over its inadequate monitoring policies.

Complying with the new rules demands a level of technical expertise not available to ordinary mortals, requiring the hiring of yet more specialized staff and buying more anti-laundering software. Small banks cannot afford the risk of massive fines or the added staff needed to avoid them, and that burden is getting worse. In February 2017, the Financial Crimes Enforcement Network proposed a new rule that would add a new category requiring the flagging of suspicious “cyberevents.” According to an April 2017 article in American Banker:

[T]he “cyberevent” category requires institutions to detect and report all varieties of digital mischief, whether directed at a customer’s account or at the bank itself. …

Under a worst-case scenario, a bank’s failure to detect a suspicious [email] attachment or a phishing attack could theoretically result in criminal prosecution, massive fines and additional oversight.

One large bank estimated that the proposed change with the new cyberevent reporting requirement would cost it an additional $9.6 million every year.

Besides the cost of hiring an army of compliance officers to deal with a thousand pages of regulations, banks have been hit with increased capital requirements imposed by the Financial Stability Board under Basel III, eliminating the smaller banks’ profit margins. They have little recourse but to sell to the larger banks, which have large compliance departments and can skirt the capital requirements by parking assets in off-balance-sheet vehicles.

In a September 2014 article titled “The FDIC’s New Capital Rules and Their Expected Impact on Community Banks,” Richard Morris and Monica Reyes Grajales noted that “a full discussion of the rules would resemble an advanced course in calculus,” and that the regulators have ignored protests that the rules would have a devastating impact on community banks. Why? The authors suggested that the rules reflect “the new vision of bank regulation—that there should be bigger and fewer banks in the industry.” That means bank consolidation is an intended result of the punishing rules.

House Financial Services Committee Chairman Jeb Hensarling, sponsor of the Financial CHOICE Act downsizing Dodd-Frank, concurs. In a speech in July 2015, he said:

Since the passage of Dodd-Frank, the big banks are bigger and the small banks are fewer. But because Washington can control a handful of big established firms much easier than many small and zealous competitors, this is likely an intended consequence of the Act. Dodd-Frank concentrates greater assets in fewer institutions. It codifies into law ‘Too Big to Fail’ … . [Emphasis added.]

Dodd-Frank institutionalizes “too big to fail” by authorizing the biggest banks to “bail in” or confiscate their creditors’ money in the event of insolvency. The legislation ostensibly reining in the too-big-to-fail banks has just made them bigger. Wall Street lobbyists were well known to have their fingerprints all over Dodd-Frank.

Restoring Community Banking: The Model of North Dakota

Killing off the community banks with regulation means killing off the small and medium-size businesses that rely on them for funding, along with the local economies that rely on those businesses. Community banks service local markets in a way that the megabanks with their standardized lending models are not interested in or capable of.

How can the community banks be preserved and nurtured? For some ideas, we can look to a state where they are still thriving—North Dakota. In an article titled “How One State Escaped Wall Street’s Rule and Created a Banking System That’s 83% Locally Owned,” Stacy Mitchell writes that North Dakota’s banking sector bears little resemblance to that of the rest of the country:

With 89 small and mid-sized community banks and 38 credit unions, North Dakota has six times as many locally owned financial institutions per person as the rest of the nation. And these local banks and credit unions control a resounding 83 percent of deposits in the state—more than twice the 30 percent market share that small and mid-sized financial institutions have nationally.

Their secret is the century-old Bank of North Dakota (BND), the nation’s only state-owned depository bank, which partners with and supports the state’s local banks. In an April 2015 article titled “Is Dodd-Frank Killing Community Banks? The More Important Question is How to Save Them,” Matt Stannard writes:

Public banks offer unique benefits to community banks, including collateralization of deposits, protection from poaching of customers by big banks, the creation of more successful deals, and … regulatory compliance. The Bank of North Dakota, the nation’s only public bank, directly supports community banks and enables them to meet regulatory requirements such as asset to loan ratios and deposit to loan ratios. … [I]t keeps community banks solvent in other ways, lessening the impact of regulatory compliance on banks’ bottom lines.

We know from FDIC data in 2009 that North Dakota had almost 16 banks per 100,000 people, the most in the country. A more important figure, however, is community banks’ loan averages per capita, which was $12,000 in North Dakota, compared to only $3,000 nationally. … During the last decade, banks in North Dakota with less than $1 billion in assets have averaged a stunning 434 percent more small business lending than the national average.

The BND has been very profitable for the state and its citizens—more profitable, according to the Wall Street Journal, than JPMorgan Chase and Goldman Sachs. The BND does not compete with local banks but partners with them, helping with capitalization and liquidity and allowing them to take on larger loans that would otherwise go to larger out-of-state banks.

In order to help rural lenders with regulatory compliance, in 2011 the BND was directed by the state legislature to get into the rural home mortgage origination business. Rural banks that saw only three to five mortgages a year could not shoulder the regulatory burden, leading to business lost to out-of-state banks. After a successful pilot program, SB 2064, establishing the Mortgage Origination Program, was signed by North Dakota’s governor on April 3, 2013. It states that the BND may establish a residential mortgage loan program under which the Bank may originate residential mortgages if private sector mortgage loan services are not reasonably available. Under this program a local financial institution or credit union may assist the Bank in taking a loan application, gathering required documents, ordering required legal documents, and maintaining contact with the borrower. At a hearing on the bill, Rick Clayburgh, President of the North Dakota Bankers Association, testified in its support:

Over the past years because of the regulatory burdens our banks face by the passage of Dodd Frank, and now the creation of the Consumer Financial Protection Bureau, it has become very prohibitive for a number of our banks to provide residential mortgage services anymore. We two years ago worked both with the Independent Community Bankers Association, and our Association and the Bank of North Dakota to come up with the idea in this program to help the bank provide services into the parts of the state that really residential mortgaging has seized up. We have a number of our banks that have terminated doing mortgage loans in their communities. They have stopped the process because they cannot afford to be written up by their regulator.

Under the Mortgage Origination Program, local banks get paid what is essentially a finder’s fee for sending rural mortgage loans to the BND. If the BND touches the money first, the onus is on it to deal with the regulators, something it can afford to do by capitalizing on economies of scale. The local bank thus avoids having to deal with regulatory compliance while keeping its customer.

The BND is the only model of a publicly-owned depository bank in the US; but in Germany, the publicly-owned Sparkassen banks operate a network of over 15,600 branches and are the financial backbone supporting Germany’s strong local business sector. In the matter of regulatory compliance, they too capitalize on economies of scale, by providing a compliance department that pools resources to deal with the onerous regulations imposed on banks by the EU.

The BND and the Sparkassen are proven models for maintaining the viability of local credit and banking services. It is time other states followed North Dakota’s lead, not only to protect their local communities and local banks, but to bolster their revenues, escape the noose of Washington and Wall Street, and provide a bail-in-proof depository for their public funds.

One in Four Local Banks Has Vanished Since 2008. Why We Should Treat It as a National Crisis. While megabanks make megabucks, local banks are financing businesses that create jobs and improve our well-being. So why are they disappearing so rapidly?

Community-based financial institutions make 60 percent of all small business loans. Photos from Shutterstock.
Community-based financial institutions make 60 percent of all small business loans. Photos from Shutterstock.

Stacy Mitchell posted May 06, 2015

This article was produced by the Institute for Local Self-Reliance, as part of its Community-Scaled Economy Initiative, which produces research and partners with a range of allies to implement public policies that curb economic consolidation and strengthen locally owned enterprise.

Here’s a statistic that ought to alarm anyone interested in rebuilding local economies and redirecting the flow of capital away from Wall Street and toward more productive ends: Over the last seven years, one of every four community banks has disappeared. We have 1,971 fewer of these small, local financial institutions today than at the beginning of 2008. Some 500 failed outright, with the Federal Deposit Insurance Corporation (FDIC) stepping in to pay their depositors. Most of the rest were acquired and absorbed into bigger banks.

“If we continue to go down this path, we’ll kill this concept of relationship banking.”

To illustrate this disturbing trend and highlight a few of the reasons we should treat it as a national crisis, we’ve published a trove of new graphs. These provide a startling look at the pace of change and its implications. In 1995, megabanks—giant banks with more than $100 billion in assets (in 2010 dollars)—controlled 17 percent of all banking assets.

By 2005, their share had reached 41 percent. Today, it is a staggering 59 percent. Meanwhile, the share of the market held by community banks and credit unions—local institutions with less than $1 billion in assets—plummeted from 27 percent to 11 percent. You can watch this transformation unfold in our 90-second video, which shows how four massive banks—Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo—have come to dominate the sector, each growing larger than all of the nation’s community banks put together.

“If we continue to go down this path, we’ll kill this concept of relationship banking,” contends Rebeca Romera Rainey, the third-generation CEO of Centinel Bank in Taos, New Mexico. Like other community banks, Centinel makes lending decisions based on its relationships with its customers and deep knowledge of the local market. It underwrites a wide range of business loans and home mortgages to local families. Many of these borrowers would likely not qualify for big-bank financing because they do not fit neatly into the standardized formulas megabanks use to evaluate their risk of default.

Yet, despite having a portfolio filled with highly localized and unconventional loans—to a home builder, for example, who constructs super energy-efficient houses entirely out of old bottles and other recycled materials—Centinel has a remarkable track record when it comes to judging risk. In 2014, the bank had to write off as a loss just 0.05 percent of the total value of its outstanding loans. In contrast, the nation’s 21 megabanks collectively charged off 0.54 percent of their lending, or 10 times as much.

Even though they excel at doing exactly what we need our finance system to do, however, community banks like Centinel, which was founded by Romera Rainey’s grandfather in 1969 and is one of about 180 Latino-owned banks in the country, are disappearing rapidly. Exactly why is the subject of much debate.graph 1

Is Dodd-Frank to blame?

Some scholars and bankers are giving the blame to the added costs of complying with the Dodd-Frank banking reform law, which created the Consumer Financial Protection Bureau and imposed new rules on banks’ behavior.

Lobbying groups … are already using the plight of community banks to push for overturning parts of the law …

In February, Michael Lux, a senior fellow at Harvard’s Kennedy School of Government and a consultant with the Boston Consulting Group, and Robert Greene, a graduate student, released a widely discussed paper arguing that the decline of community banks accelerated in “the second quarter of 2010, around the time of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s passage.” Lux and Greene contend that Dodd-Frank has piled new regulatory compliance costs on local banks “that neither pose systemic risks nor have the diversified businesses to support such costs.”

Surveys do indeed indicate that community banks are spending more on compliance as a result of Dodd-Frank, including hiring more staff, and the added burden is leading more of them to consider exiting the business by selling to a bigger bank.

Yet, the correlation between Dodd-Frank and the drop in the number of community banks is not nearly as strong or clear cut as Lux and Greene suggest. Many of Dodd-Frank’s provisions took effect only in the last year and cannot explain losses in previous years.

Consumer advocates worry that Lux and Greene’s paper, which prescribes policy changes that would make it harder for regulators to impose new rules on financial institutions of any size, may help fuel a campaign by the nation’s big banks to gut Dodd-Frank. Lobbying groups like the American Bankers Association (ABA) are already using the plight of community banks to push for overturning parts of the law, including many regulations that apply only to Wall Street.

At a hearing in February, Senator Elizabeth Warren took the ABA to task for this. In an exchange with group’s chairman, R. Daniel Blanton, she noted that “the ABA’s very first request in the name of community bank regulatory relief” was the passage of a bill exempting banks of all sizes from a rule designed to prevent them from issuing mortgages that borrowers can’t afford to repay.

“As you know, under the current rule, banks with under $2 billion in assets that issue fewer than 500 mortgages a year can already satisfy the … rule,” she said. “If Congress passed this bill that the American Bankers Association wants, how many community bank mortgages would become eligible and how does that stack up on mortgages held by Citibank, JP Morgan, and the other giants that would become eligible under this change?”

Putting the squeeze on local banks

[Dodd-Frank’s] chief failing is that it did nothing to end the too-big-to-fail status of megabanks …

A more comprehensive and nuanced answer to the question of why community banks are vanishing in such numbers has been put forward by Arthur E. Wilmarth, a law professor at George Washington University.  In a lengthy paper, Wilmarth provides a damning look at the regulatory disadvantages faced by community banks, but without feeding the deregulation agenda of their big competitors. Dodd-Frank is flawed, Wilmarth contends, but not merely because of the added burden some of its rules impose on community banks. Its chief failing is that it did nothing to end the too-big-to-fail status of megabanks and the substantial public subsidies that come with it, or to compel a fundamental change in their business model.

Wilmarth situates the decline of community banks in the context of a series of policy changes beginning in the 1990s that untethered banks from their communities and allowed publicly insured commercial banks to engage in risky speculation. This shift in policy allowed big banks to become giant conglomerates, gobbling up market share and their smaller competitors.

The financial crisis should have been a wake-up call, Wilmarth says, but instead policymakers doubled down. “The federal government encouraged further consolidation by adopting extraordinary assistance programs to ensure the survival of the biggest institutions,” Wilmarth observes.  Policymakers’ treatment of community banks could not have been more different: “Federal regulators issued hundreds of capital directives and other enforcement orders against community banks and allowed more than 450 community banks to fail.”

Wilmarth goes on to provide stunning examples of how, in the aftermath of the crisis, regulators put the squeeze on local banks, scrutinizing their loans and demanding even higher levels of capital than existing regulations called for, while explicitly exempting megabanks from the same requirements.

Post-crisis reforms in many respects continue this regulatory favoritism for big banks, Wilmarth contends. Although Dodd-Frank’s mortgage section includes many exemptions for small banks, the collective impact of the new rules is to further standardize mortgage lending. This works to the advantage of giant banks, which treat loans as commodities and use automated systems to evaluate borrowers, and it works against local banks, making it harder for them to do the kind of customized, relationship-based loans they excel at—and which their communities need.

Chase can afford to navigate the rules while its smaller rivals cannot.

Also taking a toll are complex new rules governing how much of their own capital banks must have on hand. Although they have long maintained higher capital levels than the megabanks, as well as lower loan loss rates, community banks now must file lengthy quarterly reports that are better matched to the complexities of big banks’ balance sheets. “The risk-weighted asset schedule of the call report has 57 rows and 89 pages of instructions,” noted Kansas City Federal Reserve President Esther George in a recent speech. “Yet no additional capital was required for the majority of community banks.”

As banking conglomerates have grown increasingly complex, policymakers have adopted increasingly complex regulations. But this actually benefits megabanks, a secret that Jamie Dimon, the head of JPMorgan Chase, revealed in an interview with a financial analyst.

Dimon pointed out that while regulations may cut into his bank’s margins, they increase its market share, because Chase can afford to navigate the rules while its smaller rivals cannot.

As the analyst reported: “In Dimon’s eyes, higher capital rules, Volcker, and OTC derivative reforms longer-term make it more expensive and tend to make it tougher for smaller players to enter the market, effectively widening JPM’s ‘moat.’”

The mysterious lack of new banks

Since the end of 2010, [regulators have] green-lighted only one new bank.

There’s another force contributing to community banks’ plummeting numbers, and it’s by far the most dramatic shift in the data. People are no longer opening new banks. This contrasts sharply to the five years prior to the crisis, when regulators were approving an average of 156 new banks each year, replacing roughly half of those lost to failures and mergers.

Since the end of 2010, they’ve green-lighted only one new bank. (The lone success story is Bank of Bird-in-Hand, a small institution serving an Amish community, complete with a horse-and-buggy drive-through, in rural Pennsylvania.)

Some believe that the Federal Reserve’s policy of holding interest rates near zero since 2008 is the culprit. Small banks, in keeping with their focus on turning a community’s savings into loans, derive about 80 percent of their revenue from “net interest income,” which is basically the difference between the interest they pay on deposits and the interest they earn on loans. When interest rates are extremely low, it’s challenging to maintain enough of a margin to stay in the black, especially for startups.

Big banks are far less sensitive to this, because they generate more income from fees—everything from checking account fees, which are higher at big banks than at small ones, to fees earned engineering complex securities.

During earlier low-interest periods, however, new bank formation did not flatline to this degree. A more influential factor may be a 2009 FDIC policy change that increased the length of time, from three to seven years, during which new banks are required to hold significantly more capital and undergo more frequent examinations.

The difficulty of raising this much capital—typically more than $20 million—in a depressed economy, combined with a more arduous application process adopted by the FDIC in the wake of the crisis, seems to have made starting a new bank virtually impossible.

Should we care about the fate of local banks?

Not everyone believes that blocking the emergence of new banks is a bad thing. Former Slate columnist Matthew Yglesias has argued that America has “far far far too many banks” and railed against the fact that we are “perversely committed to preserving them.” Yglesias contends that community banks are poorly managed, more risky, and less competitive compared to large banks.

Local banks … earn higher yields on their portfolios, have lower funding costs, and spend less on overhead.

There’s nothing in the research record or our financial history to support his conclusions. In fact, local banks on the whole outperform their bigger competitors on several key measures of efficiency and profitability: they earn higher yields on their portfolios, have lower funding costs, and spend less on overhead.

They’re also better at allocating society’s capital. Local banks make smarter lending and investment decisions. They channel more capital to job creation and community wealth-building, while incurring significantly less risk, than their giant competitors.

For the last 15 years, compared to big banks, community banks and credit unions have had lower loss rates across nearly every category of individual and commercial loan. As our graph tracking overall charge-off rates shows, the difference has been especially pronounced during downturns, when defaults at megabanks tend to skyrocket.

graph 2Mortgage lending is a good example. Between 2009 and 2012, the default rate on home loans across all banks was sixteen times higher than for residential mortgages held by community banks, according to Tanya Marsh, a banking law expert at Wake Forest University.

… counties in which community banks account for a higher than average share of the market have endured significantly fewer home foreclosures.

This difference can have profound effects on families and neighborhoods. One study found that, with other factors held constant, counties in which community banks account for a higher than average share of the market have endured significantly fewer home foreclosures.

But perhaps the most important reason to treat the decline of community banks as a national crisis is that, while megabanks devote much of their capacity to activities that enrich their own bottom line, very often at the expense of the broader economy, local banks are doing the real work of financing businesses and other productive investments that create jobs and improve our well-being.

Of all of our graphs, the most remarkable and telling is this one showing the share of small business lending provided by banks of different sizes. While credit unions and small and mid-sized banks account for only 24 percent of all banking assets, they supply 60 percent of lending for small businesses.

The inverse is true of megabanks: they control 59 percent of the industry’s asset, but provide only 23 percent of small business loans. Given how much ground these giant banks have gained over local banks in the last seven years, it’s not hard to understand why small business lending has continued to shrink even as the economy has recovered.

Small and mid-sized banks make the majority of loans to small businesses …

graph3while large and giant banks control the lion’s share of financial assets.

graph4Yglesias’s dream of a banking system comprised entirely of large regional and national institutions is fast becoming a reality in some regions. And the experience is not positive. In these places, financing for local businesses is significantly scarcer. And, according to a study published by the Federal Reserve, whenever a local bank fails, the surrounding community suffers: jobs growth slows, household income declines, and poverty increases.

Signs of a new direction in banking policy

Local banks are not fading away in every state. They are numerous in North Dakota, where they hold over 70 percent of deposits. The state’s rural geography and robust economy partly explain the difference, but the main reason is the 96-year-old Bank of North Dakota (BND), the only state-owned bank in the nation.

BND bolsters the capacity and competitive position of local banks by partnering with them on loans and providing wholesale banking services. The impact is significant. North Dakota not only has more banks per person than any other state, but the volume of business and farm lending they do is markedly higher (see our analysis), as is the share of mortgages held in state (which ensures that mortgage interest paid by residents benefits the state’s economy, not Wall Street).

A few states and cities—including Colorado, Santa Fe, and Seattle—are now studying BND as a possible model for their own public banks, while Vermont and Oregon have taken initial steps in that direction. But, as critical and potentially transformative as these efforts are, it will take years for new public banks to grow to an influential size. In the meantime, we urgently need to fix the broader failures in federal banking policy.

The good news is that several prominent lawmakers and regulators are calling for fundamentally changing our approach to banking policy. One idea gaining traction is to recognize that community banks and megabanks are  different types of businesses and ought to be governed by distinct regulatory regimes. “Neither I nor any community banker I know is advocating for a regulatory- or compliance-free world,” Centinel Bank’s Romera Rainey told participants at a recent Federal Reserve conference. “But we must have proportionate regulation … It’s two different [business] models.”

In early April, Thomas Hoenig, vice chairman of the FDIC, outlined a plan to do this by exempting from certain regulations banks that do not engage in securities trading, have limited involvement in derivatives, and hold capital equal to at least 10 percent of their outstanding loans and investments.

Another, more significant, idea picking up momentum is that the best way to achieve a healthy banking system is not to add layers of complex, technocratic regulations, but to adopt simple rules about the size and structure of banks.

On April 15, Senator Warren gave a speech in support of this approach. Among other changes, she advocated for breaking up big banks and reinstating a long-standing policy, overturned in 1999, that barred banks that accept deposits from engaging in Wall Street speculation, thus ensuring that taxpayers are no longer insuring and subsidizing risky trading.

“What’s needed are smarter and simpler regulations, the kind of regulations that give smaller institutions a fighting chance …”

In explaining why she favored a structural, rather than technocratic approach, Warren said: “When 11 banks are big enough to threaten to bring down the whole economy, heavy layers of regulations are needed to oversee them.  But when those banks are broken up and forced to bear the consequences of the risks they take on—when the banking portion of their business model is easy to see and evaluate … regulatory oversight can be lighter.”

“Too much reliance on a technocratic approach also plays right into the hands of the big banks,” Warren observed. “[It] often causes a bad side effect: it raises the regulatory burden for community banks and credit unions …. What’s needed are smarter and simpler regulations, the kind of regulations that give smaller institutions a fighting chance to meet their compliance obligations without going bankrupt.”

Perhaps the best reason to shift back to simpler policies that focus on structure and scale is that, by insisting that banks be more rooted in their communities, we ensure that their own well-being naturally aligns with that of their borrowers.

Romera Rainey says it best: “If our customers are not successful, there’s no way we would be.”

 

Stacy MitchellStacy Mitchell is co-director of the Institute for Local Self-Reliance and runs its Community-Scaled Economy Initiative.  To keep up with the initiative’s latest research, sign up for the Hometown Advantage Bulletin or connect with Stacy on twitter.

 

Colorado needs a public bank

Opinion

By Earl Staelin   Posted:   02/14/2015

After we bailed out the “too-big-to-fail” Wall Street banks in 2008 and 2009, things appeared to have improved. Today, Wall Street is rebounding and the job market is looking up. But the folks on Main Street working for low hourly wages or Coloradans paying tens of thousands of dollars in student debt with no end in sight, who lost their homes, or are working part time jobs with no benefits are not so sure.

Colorado entrepreneurs seeking green energy solutions and small business start-ups scramble for funding. Needed infrastructure projects like repairing our state bridges are not keeping up with civil engineers’ recommendations. Meanwhile, the marijuana industry has no place to bank its cash.

In 1729, Benjamin Franklin gave credit to the colonial government of Pennsylvania for restoring prosperity by lending money beginning in 1723. Franklin later blamed Britain’s decision in 1764 to prohibit further lending and printing of paper currency by colonial governments as the chief cause of the Revolution because it rapidly caused widespread unemployment and poverty.

Apparently, North Dakota paid attention to Franklin. This year, North Dakota celebrates its 96th year of having a state-owned bank, the Bank of North Dakota, and is the only state that has one. Arguably, as a result of its bank, North Dakota was the only state not to suffer budget deficits or declining employment as a result of the 2008 crash. Its unemployment rate was and remains the lowest in the nation at 2.8 percent. And it has had larger budget surpluses each year since 2008, no bank failures, and has remitted $900 million in taxes to the people of North Dakota. Critics attribute North Dakota’s success to its increased oil revenues, but its big increase in oil income did not occur until 2010, and Alaska and Montana have had more oil but still had budget deficits and high unemployment. Today, North Dakota has one of the lowest rates of home foreclosures, and consistently has the lowest rate of credit card default and student loan default in the United States.

The Bank of North Dakota makes most of its loans through local community banks, shares the risk, and often guarantees their loans. It invests in North Dakota and its citizens.

A public bank here in Colorado working together with our locally owned community banks is a promising option for expanding real prosperity and well-being here. It would be required to lend in Colorado. Its mission would not include paying commissions or bonuses, making risky investments in subprime loans or derivatives, or profiting at the expense of our community. A public bank’s mission would be to serve our communities by helping them thrive and our citizens prosper — through supporting small and medium sized businesses, green energy, lower student debt, reduced home foreclosures, sustainable farming, infrastructure, and more.

To this end, the first-ever conference on public banking in Colorado was held in Denver in late January. The conference, Banking on Colorado, featured national authors and local panelists representing Colorado farming, student debt, home foreclosures, green energy, a community bank, and small businesses.

For more information on the initiative, go to bankingoncolorado.org.

Earl Staelin is a Denver trial lawyer and co-sponsor of the Public Bank Initiative, which would amend the Colorado Constitution to establish a state-owned bank.