I’ve given lots of interviews related to public banking over the last week. People are looking to North Dakota to gauge the likely outcomes in California. This is flawed for many reason but perhaps the biggest is that North Dakota does not have a law like California. North Dakota created THE Bank of North Dakota, not a law allowing various municipalities to create public owned banks. That is what the California legislation allows.

There are lots of reasons to question the wisdom of public banking, This is clearly an industry with many private sector participants already, so where is the market failure? I suspect public opinion right now pushes towards acceptance of public banking based on the circumstances of the Financial Crisis of 2008-9. Why?

The banking industry received significant aid from the government at the time which irritated the public. Banks continued to pay high salaries and bonuses in some circumstances despite the need for federal rescue. Borrowers were not able to receive assistance on loans in the same way banks did from the government. All this increased frustration and ire with banks.

It is my suspicion that if the public views itself as subsidizing the risk taken on by banks then why not allow public entities to actually own the banks. Individuals recognized one of the moral hazards in the banking securer and responded, maybe not in the way anticipated, but they responded. This is obviously a discussion that will require expansion but back to the Bank of ND for now.

This graph really seems to confirm the correlation between the bank’s expansion and the overall North Dakota economy. The bank assets grow phenomenally after the year 2000, though they seem to have topped off in the last few years.

The bank’s mission makes this type of correlation likely though the timing of the changes is important to note as well and requires further examination. The question to answer there is whether the bank performance leads the economy? Or does the economy lead the bank?

Addendum: I am well aware of how deposit insurance works by the way, but do not think the general public would understand nuance around its funding model, nor would they care in the context of the Foreclosure Crisis of 2009.