Maine Public Banks

maine.public.banking@gmail.com

As the only existing state-owned partnership bank in the United States, The Bank of North Dakota, has succeeded in immunizing North Dakota's economy from international business cycle contractions and resulting budget crises. North Dakota community banks have higher average loan to asset ratios, higher small business lending per capita, higher lending per capita, lower default rates, and more community bank assets per capita than any other state. North Dakota's relative employment and incomes are also stronger.

North Dakota has been absent revenue shortfall-led budget crises that most other states face today because its state partnership bank has stabilized its economy..

It is not unreasonable to expect that many economic benefits can be realized  if Maine creates a partnership bank patterned on North Dakota.

The goals of the Maine State Bank are to improve Maine's economy in various ways:

To insulate Maine from damaging effects of international business cycle contractions, which  create local and state recessions in which jobs, income, money, tax revenues are scarce, as Bank of North Dakota has  for North Dakota economy.

Offsetting pressures for spending cuts, tax increases, state asset selling, and bond issuing, during national economic contractions, when state and local revenues fall short.

To increase Maine jobs and incomes, raise business activity, government, and private enterprise revenues.

Lessening recession impacts by making capital available for local governments and enterprises when revenues fall and private banks reduce lending.

To increase low cost credit to create and expand enterprises, build homes and other investments  in Maine.  [2017 Maine 128th Legislature  Bill LR834]

Why does Maine need a state-owned public bank?

  • Maine's middle class has been decimated by plant closings, weak tourism, vacant residences, empty commercial properties, and stagnant property values.

  • Maine has high loan default rates, high foreclosure rates, poverty, and low wages.

  • Maine graduates struggle finding jobs in Maine and leave.

  • Maine has a high tax burden and low economic activity.

  • Maine Treasurer's cash pool earns under +0.7 % annually, largely outside Maine, while the model U. S. state-owned banki has been earning over 17% return on assets by investing within its own state for many years. Only a quarter of Maine Treasurer's cash pool is deposited in Maine banks, the rest is invested in Japan, France, Canada and out of state.

  • Title 10 Part 2 Chapter 110 Maine Revised Statutes reads: “Compared with national averages, Maine is a capital-short State1, with particular lack of long-term debt and equity capital. Existing interest rates and existing patterns of lending to agricultural, forestry and fishing industries are constraining optimal economic use of farm, fisheries and forest resources.... Ordinary operations of private enterprise in the State have not corrected this condition, leaving Maine vulnerable to changes in federal policy. Farm debt has risen much faster than gross income, with costs of borrowing rising.. Similar .. difficulties confront other natural resource enterprises, particularly wood-processing ... New natural resource enterprises face problems obtaining adequate financing. More full-time farmers are going out of business than entering farming, a problem which is caused, in part, because loans for new farmers for agricultural land, improvements and operations are unaffordable, through conventional credit markets or unavailable. Increasing numbers of new, small and part-time farmers needs are inadequately served by existing financing or technical assistance programs.

  • The model state bank , Bank of North Dakota, insulated its economy from effects of business contractions that create local and regional recessions in which jobs, income, money, tax revenues are scarce, after the 2008 crash and during other downturns.

  • Maine economic activity, jobs, personal income, government revenues, and private enterprise revenues and profits need higher growth rates.

  • A Maine-owned Bank can create and expand enterprises, build homes and other structures, reduce Maine loan default rates, cut financing costs, allow local banks and credit unions to originate more loans, generate more fees, and earn more income, underwrite state, county, municipal, bond issues at lower costs, reducing governments' fees and interest expense, return profits to the Maine treasury, and cut underwater loans.

Will creation of the Maine Bank put state funds at risk?

No. By law State Instrumentalities and Treasurer would have to deposit at least 30% of their cash in the Maine State-owned Bank. Because these deposits are legally mandated a “bank run” on the state bank is impossible. “Runs on bank” are when depositors withdraw their funds from banks. The state bank will have much less risk than retail banks. Since the bank on which it is modeled Bank of North Dakota, has self-insured for almost a century without incident, Maine's assets could similarly insure a Maine Bank.

Will Maine Bank compete with local Maine retail Banks?

No. Maine Bank would not compete with retail Maine banks, it would be a wholesale bank like the bank it is modeled on, not a retail bank, like community banks.

  • Local banks in the model bank state have higher profitability with more banks per capita than Maine, due to higher liquidity.

  • Participating banks will profit from fees earned by loans with Maine Bank.

  • Maine Bank will not offer accounts to the general public, will not compete for deposits with retail banks.

  • Maine Bank will lend money in participation with local banks or other entities, who will perform outreach and risk assessment on potential borrowers like the Bank of North Dakota.

  • Maine Bank is not expected to offer credit cards, and will probably have one statewide office, as the Bank of North Dakota did.

Will Maine Bank be political?

Provisions in the Bill prevent politics from corrupting Maine Bank :

  • Political party registration, voter enrollment, of Maine Bank 's Governing Boards will be proportional to the population.

  • Political considerations would be forbidden by law when making Bank decisions.

  • Bank Governing Boards will be appointed for terms that elapse in successive years, so that no Governor can pack them.

  • Bank Governing Boards will be geographically balanced, from all 16 of Maine counties.

Will the Maine Bank replace the Finance Authority of Maine (FAME)?

No. Finance Authority of Maine may continue to operate unscathed after Maine Bank is created.

Will the Maine Bank duplicate services of Finance Authority of Maine?

No. Maine Bank creates money when lending it as other banks do. Like other instrumentalities, FAME will have accounts in Maine State  Bank. Finance Authority of Maine  Funded by appropriations from the legislature and loan repayments FAME is not a bank.

Will Maine Bank become a member of the Federal Reserve?

Yes. Maine Bank will become a member of the Federal Reserve.

Will Maine Bank become a member of the Federal Home Loan Bank?

Yes. Maine Bank will become a member of the Federal Home Loan Bank.

Will Maine Bank become a member of the Federal Deposit Insurance Corporation (FDIC)?

No. The bank will not need FDIC because it is self-insured by the State of Maine. FDIC only insures deposits up to a relatively small amount ($250,000.) Instrumentalities may have larger deposits than that.

Will Maine Bank utilize electronic funds transfers?

Probably yes. This will be decided by governing boards or bank management.

Will Maine Bank be regulated like other banks?

Yes. At the state level Maine Bank will be regulated, as private banks are, by the Bureau of Financial Institutions, State Auditor and other agencies. At the national level it will follow rules of the Federal Reserve, Comptroller of Currency, Securities Exchange Commission, and other agencies.

Will creation of Maine Bank remove deposits from private Maine banks?

No. Only 25% of the Treasurers Cash Pool is deposited in Maine-based banks. The 30% of cash deposited in Maine Bank can be reallocated from the 75% that is not invested in local banks.

Participation with Maine Bank in projects will provide local banks with loan origination fees, risk assessment fees and other profits. Banks in the model bankvi state have higher profits than Maine banks.

Should Maine reject A State-owned bank because Massachusetts (or another state) rejected it?

No.

  • Successful state-owned banks have been created in North Dakota, Germany, China, Switzerland and other countries, whose economic growth rates exceeded areas without public banks.

  • Maine has different economic characteristics from other states.

  • The proposal rejected by Massachusetts was different from Maine's.

  • The Massachusetts legislature may have been wrong to reject the Massachusetts proposal.

Would Maine Bank turn Maine into a sprawling state like Florida or California?

No.  The Bill excludes financing large subdivisions and projects that cause sprawl.

  • Maine Bank would make the Maine economy look more like the North Dakota economy, without oil or gas extraction.

  • Maine Bank enables greater investments in solar energy and other clean energy projects reduce emissions, and cut Maine's dependency on fossil fuel.

  • The Bank's investments are expected to include schools, bridges, highways, water, sewer, utilities, farms, businesses, and shopping centers in rural areas which are now under-served.

  • North Dakota had the only increasing economic activity between 2008 and 2014 of all states and it had the highest growth in education spending per student.

  • North Dakota's state bank was not a “North Dakota Access Pipeline” investor.

Would the state-owned bank bill diminish the authority of the Maine State Treasurer?

Maine State Treasurer would have the added responsibility of being an ex-officio member of the Board of Directors of the Maine State-owned Bank. No, it won't diminish Maine State Treasurer's authority.

Would the state-owned bank investments be geographically concentrated?

The geographic balance of the governing boards should result in a geographic balance in Bank activities. Each county would be represented on the governing boards.

Wasn't the real reason for Bank of North Dakota success its oil extraction gas extraction and fracking?

No.

  • Bank of North Dakota had record profits for 2015.

  • Oil and gas production crashed in 2015 due to oversupply and low demand leading to falling prices, yet Bank of North Dakota was unaffected, earning record profits.

  • If oil and gas were the main reason for the state-owned bank success it would have had dramatic cuts in profits in 2015, or even losses, but it didn't.

  • Oil and gas production is an insignificant part of Bank of North Dakota investments.

  • National oil and gas production subsidies total over $20 B per year in the U S according to Oil Change International.

Would a state-owned bank reduce the state's credit rating?

No. The added liquidity of a state-owned bank would result in a higher credit rating if state officials pay the bills responsibly. North Dakota has had a higher credit rating than Maine for many years.

Could the state-owned bank finance mergers between businesses that reduce competition or create a monopoly?

No. The proposal would not allow mergers, combinations, consolidations between businesses, reduction of competition or monopoly.

Would a state-owned bank reduce the number of private banks in this state?

  • With a state bank and 700,000 population North Dakota has 84 banks, one bank for every 8,300 people.

  • The average return on assets in North Dakota banks is substantially higher than Maine banks.

  • Without a state bank Maine has 31 banks and 1,300,000 population; one bank for every 41,935 people. North Dakotavii has over 5 times the number of banks per capita of Maine.

  • A state-owned bank should not reduce the number of private banks in the state, the opposite is more likely..

1  §981. Legislative findings Title 10 Part 2 Chapter 110 Maine Revised Statutes

2 A bank run or “run on the bank” is a situation where so many customers are withdrawing funds from a bank that they threaten its solvency

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Randall Parr,
May 5, 2017, 9:51 PM
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Randall Parr,
Jun 1, 2017, 10:20 AM
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