Letter: Learn the Facts About a State Bank
To the Editor:
There has been increasing chatter about creating a Vermont state bank, with proponents pointing to a recent study funded by the Donella Meadows Institute. A serious study of the issue requires expertise in public finance, financial markets, banking and bank regulation. The institute study lacked any of that, and also avoided complex issues, like:
∎ An initial capital outlay will be in the tens of millions of dollars. Where would that money come from?
∎ If a state bank fails or has losses, will taxpayers be forced to bail it out?
∎ Is it wise tying up state funds by investing in long-term loans? Aren’t these monies the state needs to fulfill its immediate obligations?
∎ What happens when the state’s deposits drop by over 90 percent, as they did less than five years ago?
∎ Would the bank serve those who can’t get credit from traditional sources (i.e., riskier loans)?
∎ Would a state bank also accept deposits of local government entities, deposits usually held by tax-paying institutions?
North Dakota has the only state bank in the country, the Bank of North Dakota, created in 1919. While much has been made of it turning profits over to the state, it took 26 years before returning a dollar. Also, North Dakota prohibited bank branching for years, and therefore had many small banks that couldn’t meet the banking needs of the state. Vermont has a diverse banking base with no such shortcoming. Last, much of BND’s success can be attributed to a recent oil boom and student loan business that has since been taken over by the federal government. These drivers of success in North Dakota don’t exist in Vermont.
There are many reasons to be wary of Vermont jumping into the banking business. If Vermont is going to have a serious discussion of the issue, then facts need to come from independent parties who possess the necessary experience and technical expertise, not from those with their own agenda.
The writer is a senior vice president at Mascoma Bank.