In recent months, interest has again been percolating around a public bank concept: a bank funded with and operated using taxpayer dollars. This idea is a dangerous answer in search of a question, and it is fraught with risk.
While potential legislation to create such an institution appears to have died on the vine this year, it’s important to remind anyone who will listen that the residents of Colorado and the rest of the nation are well served by a thriving and robust financial services industry. In our state, banks employ 20,000 proud professionals dedicated to their customers and help them protect and grow their wealth.
Colorado banks pay taxes to support their neighbors and communities. A public-owned bank would spend tax dollars to offer financial services that Colorado’s banks already provide. It would not improve upon our existing financial services system. Instead, it would jeopardize state and local revenues and unnecessarily strap Colorado’s budget, rather than contributing to the state’s coffers as traditional banks do.
Forming and running a bank is expensive. It would likely involve a very sizable bond issuance, and the minimum it takes to capitalize on a small bank is at least $20 million. Capital is the safety net should something go wrong. Colorado does not have the money to spare, especially now when economic stimulus and education funding are critical to the state’s post-pandemic recovery.
While existing banks are required to have FDIC insurance to protect customers’ deposits, a public-owned bank may not offer such protection. Should the bank make a loan that ends up in default, Colorado taxpayers would be left holding the bag.
Taxpayer dollars are meant to support our residents and communities’ shared needs, not to bail out a state- or city-owned bank that gambled with residents’ money.
Additionally, the formation of such a bank is against the law. The Colorado Constitution expressly prohibits the state, any county, city or town from becoming an owner or a shareholder of any corporation or company.
It’s true that one public-owned bank exists in the country: The Bank of North Dakota. Whatever the economic, political or social situation was in 1919 that led to a state-owned bank, no similar situation exists today in Colorado or any other state. That is why no other state or municipality has created a state-owned bank, despite a law that would allow California municipalities to conduct a vote to do so.
Proponents of the concept often point to the Bank of North Dakota as a functioning example of what they seek to create here in Colorado. Still, it does not serve any of the purposes that proponents cite when arguing the need for a state-owned bank. Instead, the Bank of North Dakota operates like a bankers’ bank. Banker’s banks have developed over time and currently serve the Bank of North Dakota’s role; rather than offering direct consumer lending or accepting general deposits, a bankers’ bank makes loans to banks and assists them with cash management.
COVID-19 indeed has taken an excruciating toll on our communities, our economy and our loved ones. Keeping in mind that the thousands of Coloradans are facing financial hardship due to the pandemic, the resources they rely upon to stay afloat should not be put at risk on an irresponsible and unnecessary proposal.
CBA will continue to fight this dangerous concept in any form on behalf of taxpayers and their banks that take very seriously the task of keeping finances protected.