BND: The Bank of North Dakota

In searching for a banking system less prone to corruption and systemic failure, for both Foundation Canada and World Foundation, the best model to emerge so far is that related to the Bank of North Dakota. According to an article by Steve Lendman as published by, American “states are currently facing one of the worst, if not the worst fiscal period since the great depression”.

However “One state stands out in the current environment, North Dakota, with its governor John Hoeven calling a December 15th (2009) news conference to explain that the state has so much money (a $1.3 billion FY 2009 surplus, its largest ever) that individuals and businesses will average $650 in 2009 tax savings from income and property tax cuts enacted by its legislature”.

According to Tax Commissioner Cory Fong:

North Dakota has been able to weather the economic crisis. “While other state governors and legislatures are looking for ways to raise revenue through raising taxes and cutting services, we just came through a historic session of funding both our priorities and substantial tax relief…. The winners are families, business and the State of North Dakota, “because it’s unique in one important respect.”

It is the only state with a state owned bank.

Financial writer Ellen Brown explains that the BND “chiefly acts as a central bank, with functions similar to those of a branch of the Federal Reserve.” In contrast, BND is a public bank, 100% owned by the state, operating in the public interest and those of the state. It avoids rivalry with private banks by partnering with them. Local banks do most lending. “The BND then comes in to participate in the loan, share risk, buy down the interest rate and buy up loans, thereby freeing up banks to lend more: (One of its functions) is to provide a secondary market for real estate loans, which it buys from local banks. Its residential loan portfolio is now 500 to 600 billion in a state with around 700,000 people and thriving.

Its function in the property market helped it “avoid the credit crisis that afflicted Wall Street when the secondary market for loans collapsed in late 2007 and helped it reduce its foreclosure rate….(its other services) include guarantees for entrepreneurial startups and student loans, the purchase of municipal bonds from public institutions, and a well funded disaster loan program.” When the state didn’t meet its budget a few years ago, the BND met the shortfall.”

In sum, state owned banks have “enormous advantages over smaller private institutions…. Their asset bases are not marred by oversized salaries and bonuses, they have no shareholders” demanding high returns, and they don’t speculate in derivatives or other high risk investments. As a result, BND is healthy with a 25% return on equity, paying a “hefty dividend to the state projected at over 60 million in 2009” and well over five times that amount in the last decade”.

There are, I believe, 14 U.S. states now considering the North Dakota model. Foundation will be adopting and adapting this system for both national and international financial services.

Carl Joudrie: Nov. 24, 2010

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