Pub. 15 2018 Issue 4

Issue 4 • 2018-2019 7 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S The bank does work directly with borrowers for student loans, which accounts for approximately 29% of its total loan portfolio. Those loans are guaranteed by the State of North Dakota. The bank also works directly with borrowers to originate mortgages for primary residences in certain areas where private sector mortgage services are not readily available. Federal and State Banking Laws: A public bank owned by the state and using a commercial bank charter would have to apply for federal deposit insurance, maintain the high capital levels that the FDIC requires for a de novo bank and keep a preset business plan for at least 3 years. Under New Mexico law, a bank (under a commercial bank charter) is required to take deposits and is thus required to provide FDIC insurance. In considering applications for federal deposit insurance, the FDIC takes into account: • The financial condition of the proposed depository institution; • The adequacy of its capital structure; • Its future earnings prospects; • The general character and fitness of its management; • The risk presented by such depository institution to the deposit insurance fund; • The convenience and needs of the community to be served by the depository institution; and • Whether its corporate powers are consistent with the purposes of the Federal Deposit Insurance Act. The FDIC will carefully scrutinize the proposed bank’s ap- plication for deposit insurance. Although the FDIC has stated that it is willing to consider providing deposit insurance for public banks, the text of the FDIC Statement of Policy on Ap- plications for Deposit Insurance suggests the bar for receiving approval of such an application is high. The FDIC will likely have concerns over public ownership, accountability, and the ability of the institution to obtain needed capital funds in the future. The FDIC has privately expressed concerns about its ability to exercise its enforcement authorities where a private entity is involved A public bank would be required to maintain a capital level higher than the regulatory minimum for at least three years under the FDIC’s rules for de novo banks. The FDIC’s manual on the deposit insurance application process states that obtaining FDIC insurance may be conditioned on the applicant’s satisfaction of minimum initial capital and ongoing capital maintenance for the three-year de novo period. Since each de novo bank is unique in terms of its business plan, management team, market competition and local economy, the FDIC does not prescribe a minimum dollar level of capital but instead considers the unique factors of each proposal and sets a minimum capital requirement based on an evaluation of the proposed institution’s market dynamics, anticipated size, complexity, activities, concentrations and business model. New Mexico requires that any state government that deposits funds into a commercial bank procure collateral from that bank equal to the FDIC-insured amount. If a commercial bank char- ter was used by the public bank, that requirement would apply. Bank of North Dakota: Advocates for public banking point to the Bank of North Dakota as a real success story. It is import- ant to note that the Bank of North Dakota is the only state-char- tered public bank currently operating in the United States. The $7 billion Bank of North Dakota was chartered in 1919 pursuant to a special chartering authority contained in the North Dakota constitution that is implemented via a specific North Dakota state statutory authority. The bank’s mission is to deliver quality, sound financial services that promote agri - culture, commerce and industry in North Dakota. The Bank of North Dakota takes deposits and makes loans. In addition to taking deposits from state and government agencies, the Bank of North Dakota also offers basic checking and savings accounts to North Dakota residents. It does not provide various services such as ATM cards, debit cards, credit cards or online bill pay to the public. It has only one office. The bank does not deal directly with borrowers for business and agricultural loans that comprise about half its loan portfolio but rather participates in loans that are originated by community banks. The Bank does work directly with borrowers for student loans, which accounts for approximately 29% of its total loan portfolio. Those loans are guaranteed by the State of North Dakota. The bank also works directly with borrowers to originate mortgages for pri- mary residences in certain areas where private sector mortgage services are not readily available. Under the North Dakota Constitution, state and local govern- ment funds may be deposited in the Bank of North Dakota. This provides the bank a stable core deposit base for when to fund loans. Interestingly, all of the bank’s deposits are guaran- teed by the state of North Dakota and not by the FDIC. Like a private sector bank, the bank is operated to make a profit. n