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State-owned banks in the works
State-owned banks in the works © iStock

State-owned banks in the works

Only one bank, the Bank of North Dakota, is currently state-owned. But others could soon be on their way.

Another 18 states are considering proposals for variations on the Bismarck, North Dakota bank's model as of mid-August, according to the Public Banking Institute. If approved, this type of institution will differ from a traditional bank in one key way: Deposits will be backed by the state, not by the Federal Deposit Insurance Corp. However, few states have the budget surpluses that North Dakota boasts, making approval more problematic.

Conversely, state-chartered banks are jointly supervised by their state and either the FDIC or the Federal Reserve.

The main appeal of state-owned banks would be that they're less apt to engage in risky activities. For example, the Bank of North Dakota, which opened in 1919, survived the banking collapse incredibly well, says Sam Munger, managing director of the Center for State Innovation at the University of Wisconsin-Madison.

Also, consumers could expect loan-friendly state banks that offer wide-ranging loans at more competitive rates, including student loans or mortgages. State-run banks also could give more loans to small businesses.

"After the banking crash, people started looking at alternative models," says Munger.

 

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