Would publicly-owned banks provide unfair competition to local privately-owned banks?

No. Witness North Dakota, which currently has the only state-owned bank in the U.S. It also has more local banks per capita than any other state. The Bank of North Dakota (BND) helps local banks with capital requirements, partners with them and participates in loans. For local banks, “competition” comes from the consolidation of the banking industry, whereby large banks gobble up smaller community and regional banks, or steal their customers when they participate in loans. This consolidation is reflected in the U.S. Department of Justice’s HHI comparative statistics on the relative competitiveness of major metropolitan and rural banking markets. Recessions threaten smaller banks more than larger, “too-big-to-fail” banks. Thus, a public bank, by placing its deposits with small and regional banks, can actually improve the soundness, security and independence of those banks, adding to competitiveness. When local banks disappear, often decades of knowledge about local lending context disappears with them.

I don’t trust a public bank any more than a private bank. What can be done to ensure ethical management?

The simplest way to eliminate dubious investing by a public bank is to shine light on every deal by requiring the posting of all documents relating to a public transaction on a website. This information would include who is benefiting from it, how many other deals they have sold the SBA, what fees the seller is earning, who is buying, who approves it, how many other deals they have done with this seller, and so on, together with a summary of the amount invested and the terms.

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