Thursday, July 7, 2011

State-owned banks in the US?

Many countries have state operated banks that support local development or other objectives that deviate somewhat from those of usual for-profit banks. No such institution exists in the US except for the Bank of North Dakota.

Yolanda Kodrzycki and Tal Elmatad study the Bank of North Dakota in the perspective of the feasibility of a similar bank in Massachusetts. They find that the BND is not a typical bank. While it favors local development, it rarely does so directly, but rather by helping local banks. It thus encourages a network of small and local banks, something that does not quite seem efficient to me. The BND was, however, not particularly useful in periods of crisis, like the agricultural crisis of the 1980s, because it also had financing difficulties. All in all, the bank of North Dakota is very different from state banks abroad, which offer all customer services like private banks and thus help regulate through competition some the excesses of private banking. The BND looks much more like existing development corporation that exist in most if not all US states. If Massachusetts just wants to em ulate North Dakota, it does not seem worth the large cost of the initial bond issue, especially in the current economics context.

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