A community bank is just like a small business - its investment is in the community. Its Return on Equity (ROE) is subject to the success or failure of that community. It does not have the luxury of generating profit from multiple business lines, like a Wall Street bank.
The most direct way a community bank can improve its ROE is to generate origination fees from making new loans. But, growth in the loan portfolio is governed by the ratio of capital (the investment) to loans outstanding. More loans on balance sheet means more capital is needed. Just like any small business, this is frequently a problem. Obtaining additional capital in a small town is difficult, at best. The way around this is for a community bank to partner with a much larger entity, like a wholesale bank, that has the ability to share, or participate, in the new loans. The community bank can originate the loans and receive the fees on the entire loan amount but not be burdened having the entire loan on the bank's balance sheet. This is exactly what community banks in North Dakota do - they use the state-owned bank as a partner so that they can stay busy issuing credit to Main Street businesses.
Is this duplicating a banking function that already exists? Yes, but think about it. The reason why a community bank would not want to partner with a large wholesale bank like Wells Fargo or Bank of America is that that the community bank would run the risk of their customer being "cross sold" by the larger bank and losing their customers’ deposits. If this were to happen, the community bank risks having a liquidity crisis, ultimately restricting the size of their loan portfolio.
Partnering with a state-owned bank allows community banks to:
- Generate origination fees on large commercial loans;
- Generate operating income from keeping a portion of that loan on their books;
- Protect their customer base; and,
- Keep those customers' deposits in their bank.
Members of both the Independent Community Banks of North Dakota and the North Dakota Bankers Association are more successful investing in their communities because they rely on Bank of North Dakota to provide wholesale banking services.
Isn't this what banking is supposed to be about - building communities?
About Us
The Public Banking Institute is an educational, nonprofit organization (tax exempt status pending). We are dedicated to disseminating factual, nonpartisan information about public banking and aim to help U.S. states and local tax jurisdictions launch their own public bank. A public bank helps families and Main Street businesses return to prosperity by ensuring an adequate supply of affordable credit. We research and articulate how public banking can be operated transparently under ethical guidelines, so voters will have confidence that their tax money is being managed prudently and in the public interest. We also measure economic impacts to keep voters and public officials aware of the resulting benefits.
Move Your Money is a nonprofit campaign that encourages individuals and institutions to divest from large Wall Street banks and move their money into local community banks and credit unions—to better serve each depositor and communities as a whole. It’s neither a conservative nor liberal idea, just a way for people to vote with their dollars and create a better financial landscape. We view public banking as an important adjunct, prompting states and cities to follow the lead of their citizens by shunning Wall Street banks and instead leveraging public funds to work in the public interest, for example creating local jobs.
Why Community Banks like Public Banking
Our Vision
Move Your Money and the Public Banking Institute envision communities across America enjoying lasting prosperity with full employment in a robust economy. Public banking will help enable this vision by providing communities with the sustainable supply of affordable credit that the private interests of Wall Street banks have failed to deliver. These banks are constricting the flow of credit while making huge profits on other business pursuits.
Despite this imbalance, tax jurisdictions such as states and municipal governments keep many billions of dollars of public funds on deposit in Wall Street banks. These deposits could instead serve the public interest, generating affordable credit in local communities to help businesses create jobs and families regain financial stability.
These deposits could instead serve the public interest, enabling affordable credit in local communities to help businesses create jobs and families regain financial stability.
States and cities can produce these benefits by forming their own banks to regain full control of their massive tax-revenue deposits. Resulting credit resources help ensure stable supplies of local credit. In the process, public banks generate significant profits, just as the state-owned Bank of North Dakota does. Profits from public banks are reinvested in communities to increase the tax base and/or returned to the public treasury, to reduce tax burdens.
This is the eminently achievable vision of Move Your Money and the Public Banking Institute. By demanding that your elected officials take action on this issue, you and your organization play a vital role in creating more local jobs—perhaps the single most critical step in returning your community and state to prosperity. We believe that this change must start at the local level. Together, we can make it happen.
Despite this imbalance, tax jurisdictions such as states and municipal governments keep many billions of dollars of public funds on deposit in Wall Street banks. These deposits could instead serve the public interest, generating affordable credit in local communities to help businesses create jobs and families regain financial stability.
These deposits could instead serve the public interest, enabling affordable credit in local communities to help businesses create jobs and families regain financial stability.
States and cities can produce these benefits by forming their own banks to regain full control of their massive tax-revenue deposits. Resulting credit resources help ensure stable supplies of local credit. In the process, public banks generate significant profits, just as the state-owned Bank of North Dakota does. Profits from public banks are reinvested in communities to increase the tax base and/or returned to the public treasury, to reduce tax burdens.
This is the eminently achievable vision of Move Your Money and the Public Banking Institute. By demanding that your elected officials take action on this issue, you and your organization play a vital role in creating more local jobs—perhaps the single most critical step in returning your community and state to prosperity. We believe that this change must start at the local level. Together, we can make it happen.
Get Involved
Don’t know where to start? It’s simple, really. There are two groups of people with whom you should talk and discuss the merits of public banking: your city council and your school board. These public bodies are facing recent or pending cuts in the state budget. Meanwhile, the option of issuing public bonds is quickly becoming unaffordable.
Budget cuts often mean job losses and reduced services, leaving board members stuck between a rock and a hard place. That is why you are likely to find a receptive audience for a sound, credible, evidence-based plan aimed at returning the community to prosperity—with affordable credit and a stronger tax base to support public services.
Simply download the Return to Prosperity Handbook and Presentation and get started!
Budget cuts often mean job losses and reduced services, leaving board members stuck between a rock and a hard place. That is why you are likely to find a receptive audience for a sound, credible, evidence-based plan aimed at returning the community to prosperity—with affordable credit and a stronger tax base to support public services.
Simply download the Return to Prosperity Handbook and Presentation and get started!
RTP Handbook Master 0328.pdf
click to download 
RTP Preso Master 0328.ppt
click to download Money for Main Street - a crowdsourcing project
Information coming soon....stay tuned!