Carl Person, Candidate for the Libertarian Party’s nomination for President, made the following statement today as part of solving the nation’s unemployment and economic problems, “Setting up State Banks in the 50 states can and should be endorsed by Libertarians across the board. I figured out the way it can and should be done while meeting with and speaking before the jointly held Executive Meetings of the Wisconsin and Minnesota Libertarian Parties, held yesterday in St. Croix Falls, WI. My repeated requests to speak at Libertarian meetings throughout the U.S. has been very productive in developing Libertarian ideas for creating jobs and improving the economy.”
The only state bank in the U.S. is the Bank of North Dakota ( http://www.banknd.nd.gov/ ), which has at least
significantly contributed to North Dakota’s envious position of being solvent and with a high rate of employment, and few if any economic problems, and probably the highest-rated state from an economic standpoint. The BND receives all moneys paid to North Dakota (to give it a platform for lending money through the nation’s or should I say Federal Reserve’s fractional banking system) and performs these banking programs for North Dakota [http://www.banknd.nd.gov/lending_services/index.html
- Farm/Ranch Financing Programs
- Business Financing Programs
- Government Guaranteed Loans for Lenders [under Person’s plan this would become Privately-Owned Bank Guaranteed
- Loans for Lenders
- Community Water Facility and Health Information Technology Funds
- Residential Real Estate Financing Program
- Bank Stock/Trust Preferred Securities Financing Loan Program
Most of the banking activities would be with other banks in the state (called “participating loans”), rather than making “Direct Loans”. The only direct lending authority for the BND (as granted by ND statute) is: (i) purchase or acquisition of bank stock or the formation of a bank holding company; (ii) acquisition or refinancing of farm real estate by qualified individuals; and (iii) assistance with post-secondary educational costs (i.e., student loans). All other lending is through participation through a lead financial institution (such as a bank, savings and loan, credit union or Farm Credit Services).
Instead of having the state own the state bank, Mr. Person proposes that the state license existing or newly created
commercial banks (all nationally charted and members of the Federal Reserve System) to perform the above functions, or whatever combination of functions is desired, and that the licensing be available to any nationally chartered commercial banks. Each of the banks would be privately owned, and in the case of “state banks” at a county, city or town level, which
he also would like to see, the banks should be locally owned and not part of an interstate or national group of banks.
At the state level, let’s assume there are 10 commercial banks licensed by the state to perform the state-bank functions for the state. These 10 banks would compete with each other for obtaining state deposits of money by objective analyses of their respective performances of the state-bank functions, updated regularly including the percentage of state money they are entitled to receive in deposits. The competition would create the lowest cost for performing the state function, and the risks of loss would be entirely on the private owners of the respective “state banks”, and there would be no “too big to fail” potential, especially when expansion by the state banks into other states is prohibited. Lending across state lines is permitted by BND but only when the lending benefits North Dakota’s interests.
Since the South Dakota bank has worked out so well, Mr. Person asks “Why not have “state banks” for counties, cities, towns and villages?” One of the competing (privately-owned) state banks could offer “state bank” services in political subdivisions of the state, but I would prefer that the state banks for the political subdivisions be owned by local interests, to make them more knowledgeable about and responsive to the banking needs of the local political subdivision. This locally-owned requirement would probably result in several regional banking groups to compete for the deposits of the regional political subdivisions.
The effect of having state banks throughout a state, and throughout the 50 states, would create competition within the Federal Reserve banking System and enable business and potential new business to be funded at realistic interest rates instead of the usurious, prohibitively expense (often) 31% credit card interest rates that many small businesses are now paying to borrow money for their small businesses.
State banks can be an important Libertarian plan for reducing government regulation, increasing private ownership of government functions, reducing interest for all businesses, large and small, and promoting jobs and economic growth in the United States.