Nonprofit Newswire | U.S. States Consider Starting Their Own Banks

May 1, 2010; Source: Atlanta Progressive News | Nonprofit Quarterly readers must have been mesmerized by the Goldman Sachs hearings, right? Doesn’t the appearance of bank executives claiming repeatedly that they don’t understand the questions they’re being asked, like “why” and “what” and “how” just astound you?

Political commentator Dick Morris claims that the financial reform legislation will give President Obama’s Secretary of the Treasury the power to take over banks and make them wards of the state. One senses that the financial reform legislation that will emerge from Congress will have a Rube Goldberg flavor like most legislation these days, leaving us unconvinced that much will work other than the likely $50 billion built-in TARP components.

It should be no surprise that some state governments, eight at this count, are contemplating the creation of state-run banks to take the place of conventional banks that have failed to function and lend. North Dakota has long had its own state-run bank—is that why the state is the only state that has run a surplus during the recession? Apparently, Hawaii, Illinois, Massachusetts, Michigan, Missouri, New Mexico, Vermont, Virginia, and Washington have state bank bills pending in their legislatures.

Candidates for statewide office in additional states—California, Florida, Idaho, Illinois, Missouri, Oregon, Vermont, and Washington State—have made state banks part of their campaign platforms. It sounds interesting, but legislatures and candidates ought not forget that there is a network of community development financial institutions—basically nonprofit banks of a sort—that merit additional state and federal government investment. There’s an infrastructure of nonprofit lenders that has the capacity to do much of what the states want to achieve. In some places, maybe the states shouldn’t reinvent the wheel.—Rick Cohen