Santa Fe could use a public bank

http://www.santafenewmexican.com/opinion/my_view/reader-view-santa-fe-could-use-a-public-bank/article_95acda8f-6e42-5181-8fad-55dbe2d79f30.html

Public banks are not new. The Bank of North Dakota (BND) is a century-old public bank that is an essential element of that state’s economy. In Germany, public banks garner 40 percent of all bank assets. In other parts of the world, public banks are common.

My own skepticism toward a public bank turned to enthusiasm upon working with the Brass Tacks Team of Banking on New Mexico. We modeled the first five years of a hypothetical public bank. Also, we calculated the savings to the city of refinancing existing bonds and loans through our public bank. Independent of the city’s study, we showed that a public bank can reduce city borrowing costs significantly.

Generally, this is how our public bank could work. Our public bank would be the city’s bank chartered by the state. The city would own the bank as it would provide the capital to be leveraged for loans. The city would deposit its income in the bank and pay its bills from the deposits. We assumed $100 million in city deposits, $10 million in capital and a $50 million loan portfolio. These amounts are consistent with city assets and liabilities reported for fiscal year 2014.

Over the five years, our model yielded $10.5 million in profits and reduced city debt by $4.85 million.

The bank would minimize its own expenses. It would not handle individual citizen deposits. And, it would use neither tellers nor ATMs. The bank staff would be few and other overhead would be austere. Employees would be hired and paid by the bank, not by the city.