‘Public’ bank is a risk not worth taking
Bill to establish a state-owned bank raises plenty of concerns
The NH House Commerce and Consumer Affairs Committee is currently considering potential legislation that would create a state-owned and -operated bank. This is a committee that has addressed many financial service issues over the years and served the state well. With that said, I would urge the committee to cut short the discussion.
“Public” banks have previously been proposed both here and in other states.
In 2013, Vermont sanctioned a study that concluded that “impediments to capitalization, lack of collateral for short-term loans, risk of a brand-new public venture and major opposition from some quarters would make this a formidable undertaking.”
To capitalize such an institution would require millions of dollars. It has been suggested that New Hampshire would garner these funds from the NH Retirement System coffers. It is a challenge for me to think that the trustees of this system would find such an investment acceptable under their fiduciary responsibilities. If not here, however, from where might the funds come?
“Collateralization for short-term loans” sounds fairly mundane, but it is one of those operating requirements for a bank in order to deal with changing financial scenarios, one of a myriad of “operating risks” not always recognized by non-bankers. It is one of those “risks” that add to the challenge of establishing a “brand-new public venture.”
With regards to “opposition” to this initiative, it should probably not be a surprise that this entree into business that has traditionally been a private sector domain raises not just questions of financial risk but of public policy.
This past year, a group of undergraduate students at Dartmouth College, under the direction of professors in its Rockefeller Center, undertook a study, “Assessing the Possibility of Establishing a State Bank” in New Hampshire. The report was presented to the Commerce Committee this past March.
Its conclusion, similar to Vermont’s, was that a state bank would not necessarily meet the benefits expected, specifically in this case, of “reducing interest payments, expanding lending ability of small banks in New Hampshire, greater capital security and greater autonomy.”
The report recognizes the current role of a number of New Hampshire’s “quasi-governmental” and not-for-profit agencies, such as the NH Housing Finance Authority, NH Community Loan Fund, NH Business Finance Authority and the NH Municipal Bond Bank. It suggests that current gaps in New Hampshire financing needs might be filled by working more with these agencies, which currently have the infrastructure and the expertise to better meet various capital needs.
I would add one other concern: the reality of political interference.
Public servants, our elected representatives, want to serve their constituents. That is understandable, and indeed honorable. This is done, usually, by influencing decisions, be they votes on a piece of legislation or perhaps actions (or inactions) by a government body.
Having a “bank” that must prudently, and in most cases independently, decide who does and does not receive loans, or who might or might not be paid certain interest rates, can create another challenge for a public servant trying to do her or his job.
Lastly, a public bank would not have the backing of deposit insurance from the FDIC. The risks of failure would fall upon the New Hampshire taxpayer (and perhaps the NH Retirement System).
New Hampshire currently has a number of programs that work effectively, as noted above. With the Legislature’s support, perhaps they can do even more. In addition, it has a strong banking industry that works, often in conjunction with these agencies, to meet the public’s financial needs.
I, for one, find this legislative consideration to be too questionable a potential reward for far too great a risk.
Ronald A. Wilbur of Bow is a former New Hampshire banking commissioner and before that was president of Merrimack County Savings Bank.