Better Banks, not Bigger Banks 2

Bank of North Dakota of USA was found in 1919 by a community of disgruntled farmers who got tired of the unfair practices of big banks and grain companies. Private banks charged them high double-digit interest on their loans. Big grain companies bought their wheat at a standard low price disregarding their grade. The farmers wanted fair price for their grain and credit as needed. So, by politics and state legislature they created Bank of North Dakota as a state financing arm and a state-owned mill to buy from the farmers and sell in the markets.

The Bank of North Dakota is the only state owned bank in the USA and it remains focused on the state development. A powerful commission consisting of the governor, attorney general and agriculture commissioner oversee the banks operation. The management of the bank has been making sure that the bank serves the priorities of North Dakota, not the priorities of Wall Street.

The state of North Dakota is required to deposit all state tax collections and fees in the Bank of North Dakota. The bank then invest back into the state in education and economic development activities in terms of loans and financing. It offers loans for local small businesses and infrastructure projects and student loan is one of its major programs. High interest on the states deposits, dividends and other profits are returned to the states coffers.

The bank is setup to partner with the other private or community banks locally, not compete with them. It generally plays the role of a bankers’ bank or a wholesale bank. It provides the banks with services such as check clearing, liquidity, or bond accounting, a bit like a mini federal reserve or a national bank. If a community bank lacks capital when it needs to provide a sizable loan, the state bank will partner on the loan and provide a backstop. Such partnerships help ensure that small-business owners, farmers, and ranchers can access lines of credit and they strengthen community banks. The bank also designs specific loan programs to spur certain economic activity which is not in the interest of the other banks. These loan programs are also designed for emergency financing after a natural disaster such as floods or hurricane.

Over the years and through ups and downs of the financial markets, the Bank of North Dakota has been, more or less, playing its role as follows.

  • Stabilize the state’s economy
  • Provide local businesses improved access to credit
  • Augment the lending capacity of small local community banks
  • Help fund the government through profits

In 2009 when the other states were slashing budgets and having high foreclosure rates, North Dakota had the highest surplus. Their concern was on how to spend the money and save for future. May the mission continue.


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