To: The Rhode Island State House, The Rhode Island State Senate, and Governor Gina Raimondo

PETITION TO CONSIDER PUBLIC BANKING IN RHODE ISLAND

PETITION TO CONSIDER PUBLIC BANKING IN RHODE ISLAND

Why Would Public Banking Benefit Our Rhode Island Economy?

Rhode Island can solve its budget crisis – Own a Bank!
Restoring credit to the local economy must happen at the state level. The Fed is not the answer. Many states are taking the initiative with legislation aimed at establishing state-owned banks based on the successful model of the 93 year old Bank of North Dakota.

Generates new revenue for states, directly through annual bank dividend payments, and indirectly by creating jobs and spurring local economic growth.

Lowers debt costs for local governments. Public banks can get access to low-cost funds from the regional Federal Home Loan Banks. The banks can pass savings on to local governments when they buy debt for infrastructure investments. The banks can also provide Letters of Credit for tax-exempt bonds at lower interest rates, or help a city or the state itself issue a new bond at an interest rate lower than it could otherwise get in the open market, or buy bonds already issued and traded on the bond market, with interest payments simply diverted to the state.

Builds up small business. In markets increasingly dominated by large corporations and the banks that fund them, public banks would increase lending capabilities at the smaller banks that provide the majority of small business loans in America.

Does not compete with community banks. Rather, it partners with and supports them in making loans. The BND serves the role of a mini-Fed, providing correspondent banking services to virtually every financial institution in North Dakota, including a Federal Funds program with daily volume of $330 million, check clearing, cash management services, and automated clearing house services.

Does not compete for loans or commercial deposits. Virtually all of the BND’s deposits come from the state. The BND does not take municipal government deposits; instead, these funds remain in local community banks, which are able to use them for loans because the BND provides letters of credit guaranteeing them.

Remains independent of private banking interests. Although the BND is an online member of the Minneapolis Federal Reserve Bank, it is insured by the “full faith and credit” of North Dakota, not the FDIC. This helps avoid risk and unnecessary expense,
since the BND’s chief depositor is the state, and the state has far more to deposit than $250,000, the maximum covered by FDIC insurance. FDIC insurance is not only expensive, but subjects the state to interference by a semi-private national banking association.

Supported by local independent banks. The North Dakota Bankers’ Association endorses the BND. When partnering with local banks, the BND does not solicit customers, unlike the large commercial banks. North Dakota has the most local banks
per capita and the lowest default rate of any state.

Provides accountability, transparency and prudent risk management and operates according to a charter that promotes the public interest. By partnering with local banks, the BND actually shields itself from risk, since the local bank determines the credit worthiness of the borrower and takes the initial loss in the event of default. A public bank is run by professional bankers who are public employees, operating transparently, audited publicly by state regulators, and not incentivized to speculate in derivatives and risky subprime loans.

Creates new jobs and spurs economic growth. According to studies by the Center for State Innovation, if Washington State had a fully-operational publicly owned bank capitalized at $100 million during the present recession, it would have supported $2.6 billion in new lending and helped to create 8,212 new small business jobs. Likewise, a proposed Oregon bank would help community banks expand lending by $1.3 billion and help small business create 5,391 new Oregon jobs in its first three to five years.

Is self-funding and self-sustaining. The BND keeps federally-guaranteed funds in the
state and uses the profits on these to build a capital surplus from which loans are made to local businesses. The BND has a return on equity of 25-26% and has contributed over $300 million to the state (its only shareholder) in the past decade—a notable achievement for a state with a population of approximately 670,000.

Partners with community banks by leveraging state funds into credit for local purposes, funds that would otherwise leave the state via Wall Street banks and be leveraged abroad, drawing away jobs that could go to locals. Further, infrastructure projects can be funded through a state bank at substantially less cost, since the state owns the bank and gets the interest back. Studies have shown that interest states now pay, composes 30-50% of public projects.

Strengthens local banks, even out credit cycles, and preserve real competition in local credit markets. There have been no bank failures in North Dakota during the financial cr...

Why is this important?

Rhode Island can solve its budget crisis – Own a Bank!
Restoring credit to the local economy must happen at the state level. The Fed is not the answer. Many states are taking the initiative with legislation aimed at establishing state-owned banks based on the successful model of the 93 year old Bank of North Dakota.