BY MARC ARMSTRONG – State Representative Gene Ward, R-Hawaii Kai, recently took to the floor of the state legislature to oppose creation of a State Bank of Hawaii. The idea of a public bank – using public assets to generate affordable credit and non-tax revenue to strengthen local economies – is new to Hawaii and not well understood by many, including perhaps some legislators.
Mr. Ward stated that publicly owned banks have operated mostly in undeveloped nations, which apparently was meant to imply they are not suited
to developed nations. He was in error. Public banks were, and continue to be, critical to the economic development of post-war Germany and have
successfully served Canada and Australia for decades. Japan’s largest bank is publicly owned as well. These are hardly third world nations.
Referencing a discredited study in Massachusetts, Mr. Ward alleged that Hawaiians would need $3.2 billion to form a public bank. This is vastly
inflated. Washington and other states propose capitalizing their public banks for around $100 million.
The State Bank of Hawaii would not be a retail bank. It would not have branch offices, real estate, construction, ATMs, marketing, bonuses or commissions for officers and employees. Rather, it’s a “bankers’ bank” that would partner with existing commercial banks to increase their liquidity and strengthen local credit markets. Loans in which the state bank participates are originated and serviced by existing commercial banks and credit unions.
Mr. Ward characterized the State Bank initiative as a “bailout” for the banks because a public bank could serve as a secondary market for local bank mortgages. This misrepresents the function of the bank and misconstrues how credit markets work.
A public bank is not a Wall Street-style casino that leverages worthless assets and makes profits on derivatives, credit default swaps, sub-prime
mortgage scams and the other toxic financial products that have collapsed the national economy.
If the state bank participates in local loans, they must first pass the commercial bank’s risk test and then a subsequent test from the public bank.
Its purpose is to increase local bank liquidity and thereby local bank ability to increase lending within local economies. That’s the opposite of
Mr. Ward sites the enviable economy of North Dakota – its rising incomes, budget surpluses and the lowest unemployment in the nation – and suggests it is all due to the state’s oil and gas industry rather than the successful 93 year history of the Bank of North Dakota. But the facts show otherwise.
North Dakota’s neighboring states have similar energy industries and small populations, but nowhere near its prosperity. The operational profits of the Bank of North Dakota have contributed about as much to the state’s general fund as taxes paid by the energy industry.
The striking truth about the proposed State Bank of Hawaii is that it could be a reliable money maker and a job creator for the state in perpetuity. The
well-respected Center for State Innovation projects that over a ten year period a State Bank of Hawaii would generate $71 million dollars of non-tax
revenue for Hawaii’s General Fund, and about 3,000 new jobs.
As the bank becomes fully operational, these numbers would grow each year thereafter.
We agree with Mr. Ward that the benefits of a state bank will take some time to be fully realized. But depending on how the bank is capitalized, the time frame for profits to flow back to the state will reasonably take just a few years. But as analyses of other state’s initiatives demonstrate, those
benefits build steadily and keep building. Lending activity on the other hand – the new stream of affordable credit to fuel economic development, job
creation and tax revenue from an expanding economy – can begin within the very first year.
We urge legislators to study the proven successes of public banking. A State Bank of Hawaii can strengthen local credit markets, generate jobs and public revenue and transform the Islands’ economic landscape, serving Main Street instead of Wall Street. The time for a State Bank of Hawaii is now.
Marc Armstrong is the Executive Director of The Public Banking Institute, a non-profit, non-partisan educational organization that furthers understanding, possibilities, and implementation of public banking at all levels of local, regional, state, and national jurisdiction. More on the web at www.publicbankinginstitute.org