Ellen Brown for the Deep Dive Berlin Conference, September 2015

To introduce the concept of public banking, here are some excerpts from my book The Public Bank Solution (2013) and several articles.

From the Introduction to The Public Bank Solution

We have entered a millennium that is pregnant with possibility. New discoveries in agricultural production, water desalination, and energy from non-oil sources are in the wings just waiting to be developed. We have the manpower, the materials, the science and the intelligence to create prosperity for all. Yet the world in which we find ourselves is one of austerity, mounting unsustainable debt, growing poverty and want. Why?

The problem is largely in the system of exchange we call “money,” and in the banks that store and distribute it.  Rather than allowing the free exchange of labor and materials for production, our system of banking and credit has acted as a tourniquet on production and a parasite draining resources away.

Genuine economic freedom requires that credit flow freely for productive use. But today, a handful of giant banks diverts that flow into an exponentially-growing self-feeding pool of digital profits for themselves. In the wake of the 2008 financial crisis, much of the global economy has been battling economic downturn, with rampant unemployment, government funding problems, and harsh austerity measures imposed on the people. Meanwhile, the banks that caused this devastation have been bailed out at government expense and continue to thrive at the public trough. All this has caused irate citizens to rise up against the banks, particularly the large international banks. But for better or worse, we cannot do without the functions they perform; and one of these is the creation of “money” in the form of credit when banks make loans.

This advance of bank credit has taken the form of “fractional reserve” lending, which has been heavily criticized. Yet historically, it is this sort of credit created out of nothing on the books of banks that has allowed the wheels of industry to turn.  Employers need credit at each stage of production before they have finished products that can be sold on the market, and banks need to be able to create credit as needed to respond to this demand.  Without the advance of credit, there will be no products or services to sell; and without products to sell, workers and suppliers cannot get paid.

If banks have an unfair edge in this game, it is because they have managed to get private control of the credit spigots.  They use this control not to serve business, industry, and society’s needs but for their private advantage. They can turn credit on and off at will, direct it to their cronies, or use it for their own speculative ventures; and they collect the interest as middlemen.  This is not just a modest service fee.  Interest has been calculated to compose a third of everything we buy.

Anyone with money has a right to lend it, and any group with money can pool it and lend it; but the ability to create money-as-credit ex nihilo (out of nothing), backed by the “full faith and credit” of the government and the people, is properly a public function, with the proceeds returning to the public. The virtues of an expandable credit system can be retained while avoiding the parasitic exploitation to which private banks are prone, by establishing a network of public banks that serve the people because they are owned by the people.

By making banking a public utility, with expandable credit issued by banks that are owned by the people, the financial system can be made to serve the people rather than people serving the banks. Credit flow can be released so that industry and free enterprise can thrive, and the economy can reach its full potential.

On the Bank of North Dakota (from The Public Bank Solution)

How can state and local governments share in the perks enjoyed by Wall Street?  By setting up their own banks.  North Dakota is the only US state that actually does this. It is also the only state to be in continuous budget surplus every year since the banking crisis of 2008.[i]  The Bank of North Dakota (BND) was formed in 1919 to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. Its stated mission is to deliver sound financial services that promote agriculture, commerce and industry in North Dakota.  Today it is a major source of profit for the state, generating a whopping 25% return on equity even in 2008, when revenues in other states were plummeting.[ii]  North Dakota has the lowest foreclosure rate in the country, the lowest credit card default rate, and the lowest unemployment rate.  It has no debt at all, and it has had no bank failures at least in the last decade.[iii]

In a June 2011 paper called “The Public Option: The Case for Parallel Public Banking Institutions,” Professor Timothy Canova observed that having its own bank allows North Dakota to fund projects without either raising taxes or incurring debt:

The dilemma facing governments today is how to pay for stimulus and jobs programs without incurring new debt. Public banking institutions should point the way, in part for their ability to expand lending on a revolving basis without raising taxes or even borrowing from bond markets. For instance, public infrastructure banks in continental Europe and East Asia have long recognized the role of public finance to fund long-term development projects – “projects that generate economic benefits to the wider economy in excess of their private returns.” . . .

Previous generations created parallel public banking institutions, at both the federal and state levels, to fill the unmet credit needs stemming from failures in private banking.[iv]

The BND Model

The Bank of North Dakota has a massive, captive deposit base. All of the state’s revenues are deposited in the bank by law.  Most state agencies also must deposit with the BND. Although the bank takes some token individual deposits, the vast majority of its deposits come from the state itself.  The BND does not compete with local banks for commercial deposits or loans.  Municipal government deposits are generally reserved for local community banks, which are able to use those funds to back loans because the BND provides letters of credit guaranteeing them.[v]

The BND also has a massive capital base.  The bank was originally set up as “North Dakota doing business as the Bank of North Dakota.”  That means that technically, all of the assets of the state are assets of the bank.  Beyond that technical pillar, the BND has built up a sizable capital fund.  By the end of 2010, it had capital of $327 million.  It had $4 billion in assets, of which $2.8 billion were loans; and it had deposits of $3 billion.

Unlike private banks, which are legally bound to think first of the quarterly profits of their shareholders, the BND is obligated by its mission statement to serve the community.  Like private banks, a publicly-owned bank has the ability to create money in the form of bank credit on its books, and it has access to very low interest rates. But the business model of private banks requires them to take advantage of these low rates to extract as much debt service as the market will bear.  A public bank can pass these low rates on to residents, and recapture the interest on public projects.

State infrastructure projects are effectively interest-free, since the bank returns interest to the state in the form of an annual dividend.  The result is to reduce their cost by an average of 40% over the life of the loan.

The BND’s revenues have been a major boost to the state budget.  In the first decade of this century, it contributed over $300 million to state coffers, a substantial sum for a state with a population that is only about one-fifteenth the size of Los Angeles County.  In April 2011, the BND reported annual profits of $62 million, setting a record for the seventh straight year.[vi] These profits belong to the citizens, and they are generated without taxation. According to a study by the Center for State Innovation, the BND added nearly as much money to the state’s general fund from 2007 to 2009 as oil and gas tax revenues did.[vii]

Unlike the Federal Reserve, which is not authorized to lend directly to state and local governments except in very limited circumstances, the BND can help directly with local governments funding. When North Dakota went over-budget one year, the BND acted as a rainy day fund for the state; and when a local town suffered a massive flood, the BND provided emergency credit lines.[viii]  Having a cheap and ready credit line with the state’s own bank reduces the need for wasteful rainy-day funds invested at minimal interest in out-of-state banks.

While Wall Street banks were being bailed out by the taxpayers and were drastically cutting back on local lending, the BND was increasing its local lending and showing record profits. The Bank’s loan portfolio has shown a steady, uninterrupted increase in North Dakota lending programs ever since 2006. Every year from the 2008 banking crisis up through 2012, the BND has reported a return on investment of between 17 percent and 26 percent.[ix]

The BND also serves the local banks.  It acts as a mini-Fed for the state, providing correspondent banking services to virtually every financial institution in North Dakota. It offers a federal funds program that in 2011 provided secured and unsecured federal fund lines to 113 financial institutions, with combined lines of almost $400 million. Federal fund sales averaged over $10 million per day, peaking at $41 million one day in July.[x] The BND also provides check-clearing, cash management and automated clearing house services for local banks.

Local banks are willing to take on more risk when the BND participates in their loans. Because the BND assists local banks with mortgages and guarantees their loans, local North Dakota banks have been able to keep loans on their books rather than selling their mortgages to investors to meet capital requirements.  As a result, they were able to avoid the subprime and securitization debacles.

By partnering with the BND, local banks can also take on local projects in which Wall Street has no interest, projects that might otherwise go unfunded.  The BND participates in loans for building hotels and infrastructure. Due to this amicable partnership, the North Dakota Bankers’ Association endorses the BND as a partner rather than a competitor of the state’s private banks. 

Why Public Banks Outperform Private Banks: Unfair Competition or a Better Mousetrap?

February 10, 2015

Public banks in North Dakota, Germany and Switzerland have been shown to outperform their private counterparts.

In November 2014, the Wall Street Journal reported that the Bank of North Dakota (BND), the nation’s only state-owned bank, “is more profitable than Goldman Sachs Group Inc., has a better credit rating than J.P. Morgan Chase & Co. and hasn’t seen profit growth drop since 2003.” The article credited the shale oil boom; but North Dakota was already reporting record profits in the spring of 2009, when every other state was in the red and the oil boom had not yet hit. The later increase in state deposits cannot explain the bank’s stellar record either.

Then what does explain it? The BND turns a tidy profit year after year because it has substantially lower costs and risks then private commercial banks. It has no exorbitantly-paid executives; pays no bonuses, fees, or commissions; has no private shareholders; and has low borrowing costs. It does not need to advertise for depositors (it has a captive deposit base in the state itself) or for borrowers (it is a wholesome wholesale bank that partners with local banks that have located borrowers). The BND also has no losses from derivative trades gone wrong. It engages in old-fashioned conservative banking and does not speculate in derivatives.

Lest there be any doubt about the greater profitability of the public banking model, however, this conclusion was confirmed in January 2015 in a report by the Savings Banks Foundation for International Cooperation (SBFIC) (the Sparkassenstiftung für internationale Kooperation), a non-profit organization founded by the the Sparkassen Finance Group (Sparkassen-Finanzgruppe) in Germany. The SBFIC was formed in 1992 to make the experience of the German Sparkassen – municipally-owned savings banks – accessible in other countries.

The Sparkassen were instituted in the late 18th century as nonprofit organizations to aid the poor. The intent was to help people with low incomes save small sums of money, and to support business start-ups. Today, about half the total assets of the German banking system are in the public sector. (Another substantial chunk is in cooperative savings banks.) Local public banks are key tools of German industrial policy, specializing in loans to the Mittelstand, the small-to-medium size businesses that are at the core of that country’s export engine. The savings banks operate a network of over 15,600 branches and offices and employ over 250,000 people, and they have a strong record of investing wisely in local businesses.

In January 2015, the SPFIC published a report drawn from Bundesbank data, showing that the Sparkassen not only have a return on capital that is several times greater than for the German private banking sector, but that they pay substantially more to local and federal governments in taxes. That makes them triply profitable: as revenue-generating assets for their government owners, as lucrative sources of taxes, and as a stable funding mechanism for small and medium-sized businesses (a funding mechanism sorely lacking in the US today).

The Swiss have a network of cantonal (provincially-owned) banks that are so similar to the Sparkassen banks that they were invited to join the SBFIC. The Swiss public banks, too, have been shown to be more profitable than their private counterparts. The Swiss public banking system helps explain the strength of the Swiss economy, the soundness of its banks, and their attractiveness as a safe haven for foreign investors.

The SBFIC is working particularly hard these days to make information and technical help available to other countries interested in pursuing their beneficial public model, because that model has come under attack. Private international competitors are pushing for regulations that would limit the advantages of publicly-owned banks, through Basel III, the European Banking Union, and the Transatlantic Trade and Investment Partnership (TTIP).


[i] Timothy A. Canova, “The Public Option: The Case for Parallel Public Banking Institutions,” New America Foundation, June 2011, growth.newamerica.net.

[ii] “State Revenue Changes from 2008 to 2009,” Tax Foundation, 13 May 2010.

[iii] “North Dakota Land for Sale,” Land Central, 20 Mar. 2012, landcentral.com;  Carla Fried, “Why North Dakota May Be the Best State in the Country to Live In,” Yahoo! Finance, CBS MoneyWatch, 31 Mar. 2011, finance.yahoo.com;  “Failed Bank List,” FDIC, 20 Mar. 2012, fdic.gov.

[iv] Ibid.

[v] Jason Judd and Heather McGee, “Banking on America: How Main Street Partnership Banks Can Improve Local Economies,” Demos.

[vi] “Bank of North Dakota Sets Profit Record for 7th Year,” Inforum, 20 Apr. 2011, inforum.com.

[vii] “Washington State Bank Analysis Center for State Innovation,” Center for State Innovation, Dec. 2010, stateinnovation.org.

[viii] Josh Harkinson, “How the Nation’s Only State-Owned Bank Became the Envy of Wall Street,” Mother Jones, 27 Mar. 2009, motherjones.com.

[ix] Harkinson, ibid.

[x] “Navigating for Today, Anchor for Tomorrow: Annual Report 2011,” Bank of North Dakota, 2011.

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