A state bank for the Beaver state? Lawmakers considering it
Oregon Sen. Jeff Golden (D-Ashland) has proposed legislation this session that would reintroduce a state bank concept for Oregon.
Senate Bill 339 would establish the Bank of the State of Oregon and provide more significant support for community banks and credit unions. If created, the state bank would be guided by an advisory board of directors in its management and operation, and would be subject to a mandatory audit by the secretary of state. As of Monday, the bill had not progressed beyond Finance and Revenue Committee, where it was referred on Jan. 19.
In addition to accepting deposits, the bank would be allowed to make, purchase, guarantee and hold certain loans.
The Democratic senator said the bank would primarily be involved in participation agreements with community banks and credit unions. It would be modeled on the Bank of North Dakota, which was established in 1919 and, according to Golden, has been consistently profitable for the state.
Golden noted that North Dakota had fewer home foreclosures and business failures during the Great Recession than any state in the nation, and he credited the Bank of North Dakota for its efforts to minimize foreclosures. It provides lower-interest loans for students than traditional banks and partners with community banks and credit unions to help launch new businesses owned by people with lower incomes.
The Washington Post reported that small businesses in North Dakota secured more Paycheck Protection Program (PPP) loans relative to the state's workforce than other states, with more than $5,000 per private-sector worker as of May 8, 2020. The Post's analysis highlighted the Bank of North Dakota's small size and agility. The bank had already rolled out two local successor programs to the PPP intended to help businesses restart and rebuild. According to the Post, the bank also offered deferments on its $1.1 billion portfolio of student loans.
While opponents cite concerns about the security of public dollars, the Bank of North Dakota model proves those concerns to be without merit, Golden said.
The Bank of North Dakota's website states that the institution does not compete with existing financial institutions, and it does not offer credit card or ATM services to the general public. Students can receive loans directly from the bank, and they are not targeted for other loans or retail accounts. The bank is also authorized to assist other financial institutions in providing financing to stimulate economic development.
"I thought it would be a great thing for Oregonians and the economy in a number of ways," said Golden, who joined the legislature in 2018 and pushed for a Municipal Bank of Portland last session that didn't pass. "My understanding is that Washington state is moving forward to pretty serious consideration of a state bank."
Golden has been an advocate for a state bank since 2011 when advocates introduced the first legislative proposal. They included Barbara Dudley, senior policy advisor to the Working Families Party, and a senior fellow at Portland State University's Center for Public Service.
Dudley said the idea arose in early 2009 as the Great Recession wreaked havoc on Oregon's economy. They reached out to the Bank of North Dakota to learn more about its model and talked with community bankers in both states.
"That really got us going because the community bankers were enthusiastic about it," she said. "The idea really is one of strengthening local banks, which is often lost in the shuffle because the popular language makes it sound like a retail bank, but the intention is to partner with community banks and credit unions so they can do the lending they often don't have the capital to do."
Mergers and acquisitions of community banks by large, national financial institutions means Oregon's community banks now number in the low teens compared to the 90 community banks in North Dakota.
Dudley noted that community banks are especially crucial to rural and small towns. The previous bill was introduced by the late Rep. Bob Jenson, a Republication who represented Eastern Oregon. Republicans in Central Oregon and Eastern Oregon were interested in it because of Wall Street banks' failure and the challenge of jump-starting the economy after the recession, she said.
"Honestly, (SB 339's passage) depends on how deep this recession is. There is still lots of potential money coming from the federal government and nobody knows whether the economy, once it's let loose again, will heat up or continue to wither," she said. "A state bank would operate in partnership with community banks that also have skin in the game and would be lending to startups and other local businesses. If we want real economic development in Oregon, we need to focus on Main Street."
SB 339 is now pending before the State Finance and Revenue Committee. If the bill passes, the State Bank of Oregon would begin operating on Jan. 1, 2023. Golden acknowledged the legislature is dealing with larger issues, including the COVID-19 pandemic and wildfire recovery and relief, and the State Bank of Oregon bill may not advance.
However, growing momentum behind a feasible banking system for the cannabis industry may help garner support for the State Bank of Oregon, which would be able to accept deposits from those businesses because it wouldn't be part of the federal banking system.
"Right now, we have enormous amounts of cash floating around from folks in the cannabis industry because they can't bank it, and that presents crime and public safety issues. I don't know why we aren't more serious about looking into this," Golden said.
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