by Ben Frogel

Working at Central One Federal Credit Union through the Banking Finance Internship at Westborough High School, I understand the importance of local banking. Central One understands its members’ needs in a way that a national bank cannot because it is based solely in Central Massachusetts. However, local financial institutions are struggling during the pandemic. One credit union trade group pegs the decline at roughly 4% of return-on-asset rates.

Massachusetts businesses are struggling, too, with the state government poised to deliver $78.6 million in assistance. One state has devised a way to assist these institutions and provide more people and businesses with loans simultaneously. We don’t tend to hear much about North Dakota’s government policy in the news, perhaps because North Dakotan elected officials tend to favor a small government that does not intervene much in the economy. However, it is home to one of the most innovative policies in the nation and one that Massachusetts must adopt: a state-owned bank.

North Dakota’s agricultural economy in the 1900s was mostly wheat-based, and in a region prone to drought, farmers struggled. Additionally, obtaining and paying a farm loan was extremely difficult, as banks in faraway Chicago and Minneapolis would often charge farmers 12% interest. Thus, the North Dakota State Legislature created its Bank, the Bank of North Dakota (BND), which would be owned by the government, offering fairer loans. The Bank was an instant success, helping many families keep their farmland during the Great Depression, even though the BND had to foreclose many properties. The farmers were allowed to stay and work the land, and many even repurchased their property after the Depression.

The BND’s value to North Dakota today lies in its partnerships with local banks and credit unions. All state funds are deposited in the BND, except for pension funds, giving the Bank considerable capital resources to work with that local institutions may not have. The BND understands that local institutions know local areas; if a farmer needs a large loan to purchase new equipment, a credit union located in his town will have intimate knowledge of the land and the agricultural expectations for the area–more so than a national bank. Thus, the BND partners with local institutions to provide farm, business, mortgage, and student loans. The local institution puts up half the loan funds, and the BND delivers the other half. This practice allows local institutions to provide more credit, leading to more significant investment and prosperity in North Dakota, and would allow for the same result should the approach be applied to Massachusetts.

In light of the recent fiasco on Wall Street, it is no surprise that many Americans feel as though they have no role in a finance sector that prefers to gamble on “coin-flip capitalism” than to help local economies. The booming success of the stock market and large banks amidst the turmoil and job losses of the pandemic demonstrate that the profitability of the nation’s largest banks is unmoored from the success of the economy and working people. A state bank in the mold of North Dakota’s would escape the control of these giants, as 83% of deposits in BND are controlled by local banks and credit unions. Who would you rather have in the driver’s seat, Westborough or Wall Street? As Bay Staters, we ought to control our destiny, rather than leave it in the hands of the powerful financiers of New York City.

State governments make long-term investments in their citizens that large national banks do not; the BND can subsidize North Dakota students with some of the country’s lowest interest rates. Private student loans generally come with a 10-15 percent interest rate tacked on, causing an enormous burden on graduates. BND student loans range from 2-5 percent, helping students secure higher education. For those who do not decide to pursue a college degree, the Bank will reduce interest rates by 1-5 percent for loans that it believes will create jobs in the state. With a highly educated population that no doubt would like to send as many students as possible to college, Massachusetts would benefit significantly from the reduced student loans offered by a state bank.

Some critics of big government may object to the Commonwealth playing such a large role in the economy. After all, aren’t we a capitalist society devoted to the values of private competition in a market system? If we are, the state banking model is even more appealing. In North Dakota, the Bank has not lost money; in fact, it turned a record-setting $169 million in profit in 2019. Notably, North Dakota community banks and credit unions averaged 434% more lending to small businesses than the national average, a resounding success and one that we must learn from in Massachusetts. This figure holds even more weight today, as small business revenue decreased by 44% in the Commonwealth of Massachusetts in 2020. A state bank would not crush capitalism; it would empower local capitalists to gain a foothold in the economy and serve their communities.

Individuals and businesses would not be the only beneficiaries of a state bank; it would also liberate municipal funds from Wall Street’s coffers. In the status quo, banks must have considerable collateral assets to qualify for accepting public deposits. However, state banks can waive this requirement with a letter of credit. This exception means that local governments can keep money in local banks, benefiting their communities’ economic well-being and ensuring that their funds are managed within their municipality, not New York City.

With a Bank of Massachusetts, local banks and credit unions will prosper, playing a pivotal role in the economic development of businesses, municipalities, and students in their communities. Fortunately, some legislators have noted this and plan on introducing a bill for the 2021 legislative year in the Massachusetts Legislature to create a state bank in the BND mold. For healthier communities and more significant economic development, Beacon Hill must look out for the interests of the people of Massachusetts and vote “yes” to establish a state bank.

Contact Westborough’s Representatives on Beacon Hill:
Representative Hannah Kane: (617) 722-2810
Representative Danielle Gregoire: (617) 722-2140
Representative Carolyn Dykema: (617) 722-2680
Senator Jamie Eldridge: (617) 722-1120

Ben Frogel is a senior at Westborough High School. This piece was first published on the school’s online newspaper, the Lobby Observer. SD.1712/HD.3247, “An Act to Establish a Massachusetts Public Bank” has been introduced and co-sponsors are needed. Find out more about the bill and how you can support it on our “Our Bill” page. 

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