Is a state development bank right for Connecticut?
Part 2 of 2
What’s the development bank secret? The answer: Regulated government service salaries. No fat cat bonuses. No kick-backs. No self-dealing. No double dipping. No excessive risk taking. No gambling with other people’s money. No bundled mortgages. No derivatives. No credit default swaps. No currency speculation. No short-selling. Yes, transparent accounting. Yes, profits are returned to equity.
The point of the enterprise is not self-interest. The point is economic development of the state. That’s what a democratic state development bank is all about. That’s why Morocco succeeded. That’s why North Dakota succeeded. It’s difficult to argue with success.
The question is: Could something like this work in Connecticut and other states? The answer is: Why not? The principal objection to such a state bank may be based on the false ideological premise that government and private enterprise are necessarily and irrevocably hostile opponents.
The Moroccan experience suggests otherwise. We could envisage a 60/40 partnership of public/private interest. That way, private interests and a public option would become not opponents but rather partners in the economic development solution.
Private banks in this state may fear that they could lose some of their deposits and be forced to compete more actively with each other and with the state bank for lending opportunities. But perhaps competition is a good thing?
Furthermore, when the economy recovers and further develops, thanks to the state development bank effort, the opportunity increases for all. There are more and bigger slices of a larger pie. Private banks and businesses benefit. It’s win-win for everyone.
From where would a Connecticut state bank get its funding? To begin with, a relatively small state budget input would be needed to prime the pump. Then, in accordance with the North Dakota model, state agencies could be asked to put a share of their funds deposits with the Connecticut state bank.
Finally, Connecticut citizens would be encouraged to place savings deposits with the bank and buy its certificates of deposit. However, the bank would not offer current accounts or checking accounts, or issue personal credit cards or debit cards, which is more the function of your local personal bank. Because the state of Connecticut has the power to tax its citizens, as the federal government has, the state can offer its own Connecticut deposit insurance (CDI) just as the United States offers the FDIC.
What would the development bank do for Connecticut? As in the Moroccan and North Dakota examples, the Connecticut state bank could finance infrastructure development, including transportation and communications systems, promote medium and small businesses, family-owned farms, foster high-tech green-energy innovation, provide student loans and make a market in municipal bonds for local community development. The Connecticut state development bank will do whatever we ask it to do, within its charter and within Connecticut state law.
Would a state-owned bank be appropriate for and legal in Connecticut? Our state Rep. Roberta Willis (D-64) raised these two questions several years ago. The landscapes of North Dakota and Connecticut are not the same. With a modern, well-developed private banking industry, Connecticut would not have the same needs as a poor, rural North Dakota back in 1919, and private interests would likely resist a public approach in Connecticut.
No one cared about North Dakota, but they do care about banking in Connecticut. What makes all the difference today, however, is the extent of the current recession and debt crisis. The climate has changed.
As to legality, the answer Rep. Willis determined was that a state bank is perfectly legal under the Connecticut State Constitution, but it would require new enabling legislation because the current Connecticut law (CGS sect 36a-70s) limits the possibility of a public-owned bank to a local community development bank making small loans of $150,000 or less.
Because of the current national economic crisis, there are some 14 states beginning to look at the BND model for a state-owned bank, and Connecticut could become number 15. In any case, Connecticut does not have to slavishly follow any single model like the BND. We can be still more creative in bringing Connecticut private business into close cooperation with our Connecticut state bank.
This is a win-win opportunity for Connecticut. Let’s design a new development banking approach that’s right for Connecticut, and then go for it.
Sharon resident Anthony Piel is a former director and general legal counsel of the World Health Organization.