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Are State-Owned Banks the Antidote to the Too-Big-To-Fail Epidemic?

January 15, 2013

By Christopher Matthews : Business.time.com – excerpt

The American Great Plains are known for their expansive farm lands, endless horizons, and — in recent history — staunchly conservative politics. So it may come as a surprise that only state-owned bank in the U.S. (an institution more widely associated with communist China than the Republican Party) can be found in ruby-red, rural North Dakota.
That’s right, The Bank of North Dakota (BND) — the largest bank in the state by deposits — was founded by legislative mandate in 1919, and has been a mainstay of the North Dakotan economy since that time, mostly through partnering with community banks to provide loans for local businesses. And advocates of public banking are holding up the BND as an example of what government-owned banks can do for an economy….
Community banks have proven to be a vital cog in the nation’s financial system. The subprime mortgage crisis which sparked the financial panic of 2008 and caused so much suffering across America and the world, was more the fault of large banks than small ones. And the robosigning scandal, which was recently put to bed after settlements with states attorneys general last February, and with banking regulators earlier this month, has led to the nation’s largest banks paying collective penalties of more than $30 billion. But according to the FDIC, community banks fared far better when it came to sound mortgage underwriting and fair foreclosure proceedings… (more)

 

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