State bank proposal veto begs the question: What would we use it for?
The state will not study creating a state bank following a veto by Gov. Kate Brown. (Getty Images)
One of the most distinctive policy ideas in the 2023 Oregon legislative session – creating a state bank – drew a veto from Gov. Tina Kotek.
The proposal proposed a study. But Kotek indicated that requiring the Oregon Business Development Department to study, in a short period of time, a potentially sweeping proposal would be difficult to carry out.
Setting up an Oregon State Bank would make Oregon distinct from every other state save one, and it’s an idea that Kotek said she supports. But what it would be used for?
Oregon has, of course, lots of private banks and other financial organizations, from branches of national giants like U.S. Bank (the largest in Oregon), Wells Fargo and Chase through small community banks and payday and title lenders. They undertake many kinds of transactions, including holding state funds. But some of the larger banks have been moving away from traditional community banking, and the commercial incentives of many lenders and money managers might not mesh with what are seen as public priorities.
House Bill 2763 aimed to explore, though not specifically establish, a state-run bank. State Rep. Khanh Pham, D-Portland, a sponsor, said in testimony that the idea was to help the money flow that involves local governments and provide some backup assistance to credit unions and community banks, but not to compete with them. “Think of it as a ‘banker’s bank’,” Pham suggested. As described, it might resemble something like a central bank, such as the Federal Reserve in the United States, but on a less-ambitious and state level.
(The bill’s main sponsors were Reps. Mark Gamba, D-Milwaukie, and Jules Walters, D-West Linn, and Sen. Jeff Golden, D-Ashland.)
There also are other ways of looking at the idea.
At least 10 states – Oregon was not one of them – have created state banks since shortly after the demise of the federal Second Bank of the United States in 1836, but by the end of the century nearly all were defunct, partly a result of changing economies and forms of banking. In the last century only one state, North Dakota, has had a state bank, and it is highly active.
The Bank of North Dakota was founded in an environment early in the 20th century of extreme economic hardship among the state’s farmers, who had a hard time getting loans and a harder time finding them at a moderate rate. When the populist farm-based Nonpartisan League took power in the state in 1918, it created the bank to help farmers.
Over the years, it also did much more, the bank’s web site says: “BND has responded to the state’s needs since inception. For example, when teachers were paid with warrants rather than cash during the Great Depression, BND paid them in full rather than with the 15% loss they would take when trying to cash it elsewhere. In the 1940s, BND sold back farmland which had been foreclosed during the ’30s, usually to the original families who owned it and had been allowed to remain on the land and farm it.” It accepts deposits from individuals and businesses, and makes a wide variety of loans, but doesn’t see itself in competition with private banks.
In 2010 Vermont officials explored the idea of a state bank, and reviewed the North Dakota experience. Venture capitalist Cairn Cross commented that, “the Bank of North Dakota appears to use a greater percentage of its deposits to fund loans than does the Vermont banking system. Perhaps this has to do with the Bank of North Dakota’s economic development mission.”
Likely, that comparison would hold in Oregon as well. That could provide an extra, no-cost-, boost for economic development in Oregon – a business support feature other nearby states do not have.
That may be worth considering at a time when many larger banks are moving away from community service and more in the direction of large-scale financial management and investments.
Pham and other advocates may find useful the idea of building a coalition of state bank supporters from around private interests. If the research for such an effort is done outside a state agency, with a built-in external lobby support, it might gain enough traction to see more daylight next time.
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