In 2023, the Bank of North Dakota (BND) posted profits of nearly $200 million. North Dakota is a state with 783,000 residents, about the same number of residents as Seattle. Seventeen other US cities, 85 counties, and 46 states have greater populations and larger financial marketplaces that could generate even better returns. You would think that every other city, county, and state in the United States would be working assiduously to create their own version of BND and develop this huge, new financial resource to support priorities like affordable housing, net zero energy, or more BIPOC-led businesses. Some jurisdictions, like California and New Jersey, are. But the rest have been cowed by the Wall Street banking community to desist. How dare you try to take away our business for urgent local needs?
Trying hard to change this is the Public Banking Institute (PBI), founded after the 2008 financial crisis. In this issue, we’re pleased to interview the new President and Chair of PBI, Walt McRee.
A few days ago, we held our second “Mondays with Michael,” where a dozen premium subscribers discussed the future of the local investing movement. It was fabulous. I want to invite more of you to attend my next monthly “office hours” on Monday, January 13, at 3 pm ET. If you have questions about your community or your business—or if you just want to listen in—please join us!
- Michael H. Shuman, Publisher
Walt McRee was recently named President and Chair of the Public Banking Institute. We spoke with him to understand where the public banking movement was heading.
MS: In my experience, conversations about “public banking” are confusing because the term means many things. When I look at the Bank of North Dakota, the only public bank operating in the United States, I see three separate functions. One is that the state takes surplus revenues before spending them and deposits them in local banks and credit unions to expand local lending. Second is the interest the state earns from these deposits, which it then reinvests in economic development. And third are modest banking facilities for residents in the state who otherwise are unbanked. Am I missing anything?
WM: The BND is actually more central than that since North Dakota state law requires that ALL state government deposits go into the bank. This requirement affords a significant bank advantage because it has an abundant source of “cheap” deposits to use for lending. BND uses these deposits to support statewide community banks and credit unions with participatory lending for several categories of loans, mostly for business and community development. The bank also gives state fiscal managers a much broader set of options for financing state needs, including things like infrastructure, climate emergencies, and student lending.
The interest earned by the bank is retained as capital for further lending, resulting in a constantly growing capital base for lending capacities. And BND’s profitability is a positive backdrop for ND’s government budgetary assistance and civic initiatives. The bank’s profitability is greater than virtually all of the largest private banks in the US and has been for many years.
BND’s capital strength and independence from Wall Street helped keep the state out of the debilitating economic problems that resulted from the financial collapse of 2008. While BND does not provide many consumer-directed lending services, leaving that business to local community banks and credit unions, several public banking initiatives elsewhere do focus on the need to help under-banked citizens acquire banking relationships.
MS: What’s the history of the Public Banking Institute? When did it begin? What have been its accomplishments?
WM: PBI started in the wake of the banking collapse fiasco of 2008. One of our founding members, Ellen Brown, wrote a best-selling book called Web of Debt, which laid out the debt-based nature of our monetary system and showed people how the private Wall Street banks extracted huge public wealth and jeopardized economic stability. There was also a new understanding that banks were actually creators of new money, not just intermediaries, which meant that banking was an important lynchpin for all public finance. This awareness led to an obvious question: Why shouldn’t the public have the same powerful finance tools that private investors have? Why not replicate what 900+ publicly-owned banks around the world successfully do? Not long after the 2008 banking debacle, “Occupy Wall Street” awakened the consciousness of “the 99%,” and the Public Banking Institute started educating folks nationally. Since then, PBI has participated in over 50 public banking initiatives at local, regional, and state levels.
MS: What interested you personally in public banking?
WM: I’ve been active in public interest concerns most of my life, from anti-war and civil rights to public broadcasting and the environment. I liked the logic of keeping public control of public money instead of handing it off to Wall Street. And I saw that public banking offered a uniquely important systemic breakthrough for financing public needs. Since banking is at the center of the creation and control of money, public banks can help us realize our public policy agendas.
MS: In 2023, the Bank of North Dakota reported nearly $200 million in profits. It seems like a no-brainer for states, counties, and localities to set up similar public banks and enjoy a reliable source of revenue. And yet, no new public bank has been created in more than 100 years. Why?
WM: You’ll have to give the “800-pound gorilla” credit for that. Big banks exert “convincing” pressure on the levers of government power at all levels, and they don’t like competition. But that’s not the only factor. Elected officials can be hesitant to try new things that may put them at electoral risk; they are not entrepreneurs and probably don’t know about the power of the banking franchise or how it works. The Public Banking Institute and related movement partners provide education as well as advice and guidance to help overcome this resistance. Once local people appreciate the many ways their public dollars are tethered to the private, for-profit banking regime, a bigger picture of potential benefits takes shape. This explains why public banking requires strong grassroots understanding, organizing, and support.
MS: You’ve been very active in efforts to create a public bank in New Jersey. How far have you gotten?
WM: New Jersey’s Governor Phil Murphy was the country’s first state leader to tout the benefits of a public bank in his successful campaign and eventually launched a public bank implementation board, on which I consulted. That board has now completed its work, though it did not create an actual depository public bank. Instead, it created a social impact investment fund. While this outcome was a disappointment for us, it did launch a bureaucratic process to establish a true public bank at some point in the future.
There is an important distinction to make between a revolving fund and an actual depository bank. Revolving funds are limited by their capital allocations. They must rely on the funds that they control and recover from loan activities, while a depository bank actually creates new money through its power of capital leveraging. Currently, banks are allowed to make ten dollars in loans for every dollar on deposit.
MS: You’ve said publicly that you want to move the Public Banking Institute into more action. What exactly will that look like over the next year or two?
WM: PBI has been at the forefront of this national movement since 2010, yet there are still no new public banks in the country. We’ve learned a lot and now know what we need to do for public banks to materialize. Part of that process is evolutionary. We will now be expanding the education of public stakeholders and government officers. We will also highlight economic challenges that public banks are uniquely capable of solving, such as environmental resilience, small business lending, affordable housing issues, and so forth. We will actively pursue partnerships with public interest groups that travel the road of economic justice and fairness. We will work these threads nationally with our many partners. We want public banking to be seen as essential democratic infrastructure that can help mitigate the problems with depending on Wall Street.
MS: Where I live, in California, the state passed legislation a few years back to create a framework for some pilot cities to set up public banks. Several, such as Oakland and Los Angeles, have completed studies and business plans. Is this the way other states should proceed?
WM: Every governmental entity considering the creation of a public bank will likely have to prepare a study and a plan—after all, it is a complicated and high-risk pursuit. Unfortunately, we’ve seen these studies sometimes lead the public process astray. But there are also important questions to answer. How would a public bank interface with a jurisdiction’s existing fiscal partners and agencies? What exactly does the community want to accomplish? What are the existing conditions that must be accommodated, and what is the vision of the community at large? These are not difficult questions, but a strong forensic case must be made to propel a banking initiative forward.
That said, as the 105-year-old Bank of North Dakota demonstrates, it is well worth the effort. Once a few of these banks take hold around the country, we expect to see a groundswell of acceptance for establishing them.
MS: Do you see ways that local investors—or the local investment movement—could support or complement public banking?
WM: Your work at The Main Street Journal, which focuses communities on local investment, is a logical and harmonious application for having a public bank. What better resource for local financial management and innovation to occur than at a bank? And if that bank is under the guidance and support of local authorities accountable to the public, then local investments can be structured with a backdrop of local equity and transparency. We think there is a natural connection for us to work on local investment together.
MS: What are ways readers of The Main Street Journal could get involved with your work?
WM: I think we must first see this work as our work. Wall Street—profiteering in all aspects of American life—needn’t be given a free pass to use public government infrastructure as a captured customer. So, a civic response in defense of our common fiscal assets and interests needs to be mounted by citizens who see the corrosive nature of Wall Street collusion in government functions. There are many public banking initiatives underway around the country, but it will take a growing chorus of grassroots involvement to challenge that 800-pound gorilla! I would also suggest that your readers spend time on the Public Banking Institute website, which is a robust assortment of public banking background and resources that will describe where we’ve been and what is currently underway, as well as how to find local ways to participate.
MS: Do you personally invest locally? If so, how?
WM: I invested in real estate projects—closely tied to local economic outcomes!
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