48th LD Sen. Patty Kuderer’s State Bank is a Terrible Idea

By | May 25, 2018

48th District State Senator Patty Kuderer wants a state bank. She said that she has lots of data to prove it is a great idea. Well, turns out, there is only one state-ran and state-owned bank in this country – the Bank of North Dakota.  However, in the 1800s, there were a number of state-owned banks in US. They all failed miserably, and at great expense to the taxpayer.

Although the Bank of North Dakota is generally a well-run institution now, even its President and CEO, Eric Hardmeyer, advised against starting a state-owned bank in his article on New York Times. In Mr. Hardmeyer’s own words “Today, the bank receives many calls from people interested in starting a state-owned bank, and our response is consistent. We do not advocate the use of this model elsewhere.”

Mr. Hardmeyer said in his article “the Bank of North Dakota is successful because we are partners with North Dakota’s financial institutions, not competitors. However, according to the bill report of SB 5464, “The state bank would compete with private banks on a wide array of services that are offered and available by private banks, without having to pay taxes.” In other words, Senator Kuderer’s state bank would do exactly the opposite of what Bank of North Dakota has done!

Furthermore, when the government owns the banks, lending decisions become increasingly driven by politics, rather than economics. A 2002 paper from a Northwestern University economist found that areas with stronger political parties get lower interest rates from public banks.

The state is on the hook to guarantee all deposits in the state bank. When the first American public bank, the Vermont State Bank, failed after only six year’s operation in 1812, it costed the citizens of Vermont the equivalent of almost $3 billion in today’s dollars. Are Washingtonians ready for this kind of risk?

Update: A recent Bloomberg Businessweek article pointed out that startup costs of a public bank could be in billions. The Businessweek article said “The anticipated startup costs have derailed past attempts to found public banks. Massachusetts abandoned a proposal for one in 2011 after an analysis pegged the required capital at $3.6 billion. The chief legislative analyst for the L.A. City Council issued a report in February saying the costs there could be “exorbitant.” ” . On Nov. 6, voters in Los Angeles will be voting on a public bank. We will update readers on the result when it comes out.

Update: L.A. voters rejected measure to create public bank with  57.81% votes.

 

 

 

2 thoughts on “48th LD Sen. Patty Kuderer’s State Bank is a Terrible Idea

  1. Angry Citizen

    This is patently false.

    1) Public banks lend at lower interest rates than private banks, which means that we’d save money on infrastructure, housing, and other projects that use lots of capital. In addition, a public bank, owned and managed by the people or an independent body that adheres to the needs of the state, would build equity over time and provide a sustainable revenue stream without the continued reliance on Wall Street for money.

    2) You are putting down the idea of a public bank based on a failed run in Vermont in 1812? Really? Back up your arguments with relevant examples.

    3) This kind of slam piece is exactly what Wall Street loves to see. By challenging a fresh idea that champions the community rather than large corporations/banks, you are implicitly endorsing their efforts.

    4) Sen. Kuderer does not suggest that this public bank will compete with Wall Street. In fact, her bill and idea is to create an entity which allows municipalities like Kirkland, Redmond, the Port of Seattle, etc. (any entity that taxes) to contribute and become a part of the bank. This has been shown to not affect the bottom line of big banks.

    5) You are cherrypicking Mr. Hardmeyer’s words. He goes on to say “We do not advocate the use of this model elsewhere. It is an issue for each individual state or municipality, and each must determine what is best for its needs.” Sen. Kuderer has done just this – used the model in North Dakota as an example of something that allowed that state to thrive and provide for communities when other states struggled during the 2008 recession. She has adopted the “idea” but advocated for a public co-op bank, rather than the exact model in North Dakota. Cherrypicking lines from an opinion piece is dangerous.

    6) In general, slamming new ideas without offering other solutions is exactly why our government cannot function the way it is designed. Your group, and any other that pushes these corrupt slam pieces, do not deserve the time of day.

    Reply
    1. asianadmin Post author

      You are clearly from Senator Patty Kuderer’s camp. Happy to have a debate on this…

      On your point #1.. There is no free lunch. First of all, it is expensive to establish a bank. Have you done the math how much it will cost to establish the state bank? Money does not grow on trees. I see wasteful spending of taxpayers’ money right here. Secondly, you failed to point out the financial risk associated with the state bank. In the bill, it says “All deposits in the trust are guaranteed by the state rather than insured by the federal deposit insurance corporation.” In other words, if the state bank mismanages the funds, taxpayers in Washington state are on the hook for all the losses. Plus, does our government have a track record of efficiently managing public funds?

      On your point #2.. It actually proved my point. Senator Kuderer said that she has lots of data when in fact there is only one state bank survived in the entire Unite States. All failed more than 100 years ago. You have to ask if a state bank is such a good idea, why only one state bank today?

      On your point #3.. I was just speaking common sense…

      On your point #4.. It states in the bill report “One policy question is: should a state sponsored bank be created to compete with private banks and be granted a competitive advantage? The state bank would compete with private banks on a wide array of services that are offered and available by private banks, without having to pay taxes.”

      On your point #5.. The industry mix of North Dakota is dramatically different from that of Washington state. Hence, what works in North Dakota may not work in Washington. Hence, Mr. Hardmeyer’s words were correctly quoted. Also, you just confirmed what I have pointed out, Senator Kuderer is risking our public funds to test an unknown territory.

      On your point #6.. We simply want to point out all the risks so that the public can be well informed. Seeing Senator Kuderer only tells people the rosy side of the story, we felt compelled to let the public to know the other side of the story.

      Reply

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