As Washington tries to regulate Wall Street's newfangled derivatives, government officials in at least a dozen states are mulling a more old-school response to the financial crisis: 100 percent state-run banks. Since 1919, North Dakota has operated the nation's only depository of this kind, a genuinely socialist enterprise that spins tax revenues into loans for in-state farmers, students, and small-business owners. Unlike other banks, the Bank of North Dakota (BND) plows about half its profits into the state budget and takes cues from the governor, who acts as chairman, and a seven-member advisory board that the governor appoints.
In normal times, such a bank might not be politically palatable. Now, however, it's emerging as an attractive model for lawmakers—in large part because North -Dakota flourished during the recession, with the nation's lowest unemployment rate (about 4 percent) and one of the largest budget surpluses (more than$1 billion). Some of the state's well-being is attributable to its agriculture- and energy-based economy. But the BND has helped greatly, propping up more than 100 privately held community banks and keeping credit flowing to small, local businesses even as it remains tighter nationally. The bank could be attractive for more populist reasons, too: it helps keep taxes low—BND has offset $350 million in public projects since 1997—and Main Street's money out of Wall Street's coffers.
Last month Washington state formally proposed its own version, while Hawaii recently commissioned a report. And representatives from other regions are calling Eric Hardmeyer, the CEO of the BND, for advice. His response? Despite the advantages, don't count on getting your own -socialist bank. "The idea of state ownership," he says, "doesn't resonate across the country real well."