November 20, 2014

Bank of North Dakota outperforms Wall Street

Counterpunch - While 49 state treasuries were submerged in red ink after the 2008 financial crash, one state’s bank outperformed all others and actually launched an economy-shifting new industry.  So reports the Wall Street Journal, discussing the Bank of North Dakota and its striking success in the midst of a national financial collapse led by the major banks. Chester Dawson begins his  article:
    It 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. Meet Bank of North Dakota, the U.S.’s lone state-owned bank, which has one branch, no automated teller machines and not a single investment banker.
He backs this up with comparative data on the BND’s performance:
   Its total assets have more than doubled, to $6.9 billion last year from $2.8 billion in 2007. By contrast, assets of the much bigger Bank of America Corp. have grown much more slowly, to $2.1 trillion from $1.7 trillion in that period.

    . . . Return on equity, a measure of profitability, is 18.56%, about 70% higher than those at Goldman Sachs and J.P. Morgan. . . .
    Standard & Poor’s Ratings Services last month reaffirmed its double-A-minus rating of the bank, whose deposits are guaranteed by the state of North Dakota. That is above the rating for both Goldman Sachs and J.P. Morgan and among U.S. financial institutions, second only to the Federal Home Loan Banks, rated double-A-plus.
... To what, then, are the remarkable achievements of this lone public bank attributable?

The answer is something the privately-owned major media have tried to sweep under the rug: the public banking model is simply more profitable and efficient than the private model. Profits, rather than being siphoned into offshore tax havens, are recycled back into the bank, the state and the community.

The BND’s costs are extremely low: no exorbitantly-paid executives; no bonuses, fees, or commissions; only only one branch office; very low borrowing costs; and no FDIC premiums (the state rather than the FDIC guarantees its deposits).

These are all features that set publicly-owned banks apart from privately-owned banks. Beyond that, they are safer for depositors, allow public infrastructure costs to be cut in half, and provide a non-criminal alternative to a Wall Street cartel caught in a laundry list of frauds.

Dawson describes some other unique aspects of the BND’s public banking model:
    It traditionally extends credit, or invests directly, in areas other lenders shun, such as rural housing loans.

    . . . [R]etail banking accounts for just 2%-3% of its business. The bank’s focus is providing loans to students and extending credit to companies in North Dakota, often in partnership with smaller community banks.

    Bank of North Dakota also acts as a clearinghouse for interbank transactions in the state by settling checks and distributing coins and currency. . . .

    The bank’s mission is promoting economic development, not competing with private banks. “We’re a state agency and profit maximization isn’t what drives us,” President Eric Hardmeyer said.

    . . . It recently started offering mortgages to individuals in the most underserved corners of the state. But Mr. Hardmeyer dismisses any notion the bank could run into trouble with deadbeat borrowers. “We know our customers,” he said. “You’ve got to understand the conservative nature of this state. Nobody here is really interested in making subprime loans.”

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