How fed up farmers started the only government-run bank in the US

Podcast Summary

• A new kind of bank: Public Banking: Public banking, inspired by helping underserved communities, is gaining support in places like New York and California, aiming to provide more equitable access to financial services, but comes with challenges

  Melissa Marquez, inspired by her mother's experiences as a loan officer in a poor community, has spent her career in banking with a goal of helping those turned away by traditional institutions. Now, she's advocating for a new kind of bank: a public one, owned by the government. Public banking is gaining support in places like New York and California, as advocates argue it could provide more equitable access to financial services. Melissa shares her vision for this alternative banking model on today's episode of The Indicator from Planet Money. While the promise of public banking is great, it also comes with challenges. Tune in to learn more about these potential benefits and obstacles, as well as a look at the only state in the U.S. with a public bank.

• A grassroots movement led by North Dakota farmers: In 1919, North Dakota farmers established the Bank of North Dakota, the only public bank in the US, to challenge unfair financial practices by out-of-state banks, offering a unique model with state ownership.

  The Bank of North Dakota, the only public bank in the United States, was established in 1919 as a response to farmers' frustration with the financial system. These farmers, primarily located in North Dakota, felt they were being treated unfairly by banks located outside their state. They sought to create agricultural infrastructure and eventually landed on the idea of a government-owned bank. Despite opposition from lawmakers who saw it as socialist, the farmers persevered, and the Bank of North Dakota's business model, which has ownership in the hands of the state, remains in place today. This differs from private banks, where ownership is in the hands of private investors, or credit unions, where ownership is collectively held by the members. The Bank of North Dakota's origins can be traced back to a grassroots movement driven by farmers' desire for fairer financial practices.

• Public banks, like North Dakota's, are owned and supervised by the state or local government: Public banks use tax dollars and revenues to make loans within the state, returning profits to the government and keeping them in public hands, leading to record profits and lower tax rates.

  The Bank of North Dakota, a public bank, operates differently than private banks. While private banks are overseen by regulatory bodies like the Federal Reserve, public banks like North Dakota's are owned and supervised by the state or local government. The North Dakota bank uses tax dollars and revenues to make loans within the state, often partnering with private banks on these loans to share risks and leverage funds. This business model, which returns profits to the state, has resulted in record profits and lower tax rates for North Dakota. Advocates of public banking in other areas are attracted to this model, as it keeps profits in public hands and fosters partnerships with private institutions rather than competition.

• A public bank in Rochester would keep local taxpayer dollars circulating within the community: A public bank in Rochester, owned by the city, would use local taxpayer dollars to fund local projects, stimulating economic development and keeping money within the community

  A public bank in Rochester, as proposed by Melissa and other advocates, would keep local taxpayer dollars circulating within the community by using them to fund local projects. This is different from how mega banks use taxpayer dollars, as they also fund corporate mergers and acquisitions that are often located far away from the communities they serve. A public bank would be owned by the city, and the money deposited there would be used to finance projects within Rochester. This model, called the participation loan model, would allow public banks to team up with private banks and credit unions to finance riskier projects that might not be attractive to private banks alone. By using local money for local projects, a public bank could help neglected neighborhoods become part of the economic engine and stimulate economic development. However, major banking associations oppose public banks, viewing them as redundant to the lending that commercial banks already do.

• Advocating for Public Banks Despite Risks: Public banks, without FDIC insurance and vulnerable to political pressures, are being advocated for in some states and cities, despite potential risks.

  Public banks, which are not regulated by entities like the Federal Reserve, come with potential risks. These risks include a lack of FDIC insurance for deposits and vulnerability to political pressures. Despite these risks, advocates like Melissa Marquez continue to advocate for the creation of public banks in states and municipalities across the country. This alternative financial system is being lobbied for in places like New York and cities such as Los Angeles and Philadelphia. While some may view this push as an uphill battle, Melissa and her supporters remain undeterred. This episode was produced by Corey Bridges and engineered by Josh Newell, fact checked by Sarah Juarez, and edited by Kate Concannon. It was sponsored by Mint Mobile, which offers unlimited wireless plans for $15 a month with a 3-month commitment, and Capital One, which provides customized financial services for businesses.