By Curt Peterson, Standard Correspondent
At a time when individual states are being asked to assume more responsibility, Gwendolyn Hallsmith and Henry Jacqz advocate for a state-owned bank to hold and manage $350 million they say is the average uncommitted balance in the state’s bank accounts, a move they say would benefit Vermonters instead of private banks’ shareholders.
Hallsmith and Jacqz say two things are needed from the Legislature to create a Vermont State Bank – a commission charged with studying the possibility and to design a functional model, and for the Legislature to grant the state a license to operate the bank.
State Representative Brian Cina (Progressive – Chittenden 6-4) of Burlington introduced bill “H.208, An act relating to creating the Commission on the State Bank of Vermont” in January 2017. According to Hallsmith and Jacqz, both the Senate Finance Committee and the House Commerce and Economic Development Committee refused to take testimony on the bill, effectively killing it, at least for the previous session.
Hallsmith is founder and former coordinator of Vermonters for a New Economy, a nonprofit corporation headquartered in Montpelier. Jacqz is a core organizer and current leader of the group. More than 18 people attended their presentation at the Hartland Library on Jan. 12, co-sponsored by Aging in Hartland and the library.
The duo cited as a successful possible model The Bank of North Dakota, founded in 1919 and scoring record profits for the past 15 years. Ellen Brown, who has written multiple articles and blogs about BND, said in her November 2017 “Web of Debt” Blog, “[BND] does not pay bonuses, fees, or commissions; has no highly paid executives; does not have multiple branches; does not need to advertise; and does not have private shareholders seeking short-term profits.”
Christopher D’Elia, a lobbyist representing the Vermont Bankers’ Association, says the North Dakota situation is not relevant.
“The Bank of North Dakota is interesting,” D’Elia said, “but it was founded and has operated in a different financial environment than we have in modern day Vermont. Its success depended on the economic policies of the state, and it took a long, long time before it was profitable.”
Vermont currently keeps all of its funds with People’s United Bank, a $55 billion regional bank incorporated in Delaware and headquartered in Bridgeport, Connecticut.
According to Hallsmith, Vermont earns .75 percent interest annually on its deposits, less than $3 million, while People’s United charges Vermont $800,000 each year in service fees. Like other banks, People’s will lend money to businesses and individuals throughout New England using Vermont’s deposits as collateral, but when Vermont needs to borrow capital, People’s will charge the state a higher rate of interest than it’s paying the state on its deposits.
This is the private banking model, and its benefits for shareholders are obvious. D’Elia warns the benefits purchased with the fees paid to private banks are valuable to Vermont.
“By making funds available to the state we can assure liquidity,” he said. “A state bank would have to tie up funds on a long-term basis – how would they pay their bills during rough times?”
He said the private banks also provide sound underwriting when they make loans within the state.
“In essence, Vermont already has a working state bank,” Hallsmith said. “Five agencies, including Vermont Economic Development Agency, Vermont Student Assistance Corporation, Vermont Housing Finance Agency, the Municipal Bond Bank and the state Treasurer all provide financing and manage funding within the state government now.”
She said the state bank could use the expertise, systems and connections of these agencies to form the new entity, reduce redundancy among them, and eliminate the need for some on the five management teams. “The CEO of the Bank of North Dakota earns $250 thousand,” she said. “The CEO of People’s United makes $25 million a year.”
The VBA’s D’Elia agreed that the Vermont agencies now performing these services do a very professional job.
Cynthia Landeryou, assistant vice president and branch manager for Mascoma Savings Bank, which has offices in many Vermont towns, including Hartland, asked what effect a state bank would have on local banks that serve every community in Vermont. Hallsmith said the state bank would provide the funds the local banks would then lend to customers – individuals, businesses, nonprofits and municipalities – just as Wall Street banks do now.
Landeryou said municipal business is the lifeblood of local banks and small branches.
“If you take away our municipal deposits,” she said, “we could close our doors.”
“The state funds would be the only deposits, and loans would still be made through local banks in the communities,” Hallsmith said. “In North Dakota their state bank has been in business and growing since 1919 – and there are many, many local banks and branches in the state, working with the state bank.”
D’Elia said this was the first time he’d heard a definitive answer regarding the proposed relationship between the state bank and local private banks.
“This relationship has been unclear,” he said.
Asked about the risks involved, Hallsmith said there is some risk in every type of banking, but she feels there would be no more risk with a state bank than there is with private banks.
“North Dakota was the only state that had no bank failures during the 2008 banking crisis,” she said.
Hallsmith said many other public banks are under consideration, including one for the State of California’s legal cannabis industry – private banks are prohibited from accepting deposits from or making loans to cannabis growers and dispensers because sale of the drug is illegal under federal law.
This article first appeared in the January 18, 2018 edition of the Vermont Standard.