Sunday, March 27, 2011

Does A Local-Regional Banking Model Make Sense?

BND: Bank of North DakotaFor the State of North Dakota it does.  The following is an excerpt from a story examining the Bank of North Dakota (BND).  The bank's customer is the state.  It apparently weathered the financial storm from 2008 without a hiccup.  Actually had one of it's better years ever.  

The BND has a return on equity of 25-26% and has contributed over $300 million to the state (its only shareholder) in the past decade -- a notable achievement for a state with a population less than one-tenth the size of Los Angeles County. Compare California’s public pension funds, which entrust their money to Wall Street and are down more than $100 billion, or close to half the funds’ holdings, following the banking debacle of 2008.

So now eight other states want in on that pie as well. The question that comes to my mind is this.

The BND does not have any substantial exposure to private or commercial depositors. It's only client is the State. The US Federal Government printed money and provided 'liquidity' to the financial system in untold and historical amounts. With private and commercial economies slogging through their muck, stability (and growth) at the State level, and from a banking perspective, is almost a given - no?  The State itself might be going bankrupt like Wisconsin, but the bank?  Hell no, we're taking that all the way to the .... (local) bank (that is)!

And they are not under the rules of the FDIC.  Nor do they pay those premiums to a central private banking cartel.  The bank is fully guaranteed by the State. Hmmmm.  The bank's book might be stellar.  What does the State's books look like?  The Bank may have paid the State $300M in good performance of their investments - but what has the State done with it?  The Economic Development and Finance Department of Commerce tells a story of "supporting emerging businesses, entrepreneurs and expansions".  They are keeping  the money in the State, locally redistributed.  All indicators show the State of North Dakota too is on a different (and possibly more sustainable) path.


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