Lisa Simpson
Mar 15,2010
In: Finance

Proposals are Being Made to Float a Bank Owned by the State

Proposals are being made to float a bank owned by the state.

The setting up of a bank that would be owned by Michigan State was proposed by Virg Bernero the Mayor of Lansing. It would advance loans with modest interest rates to business concerns and college students.

Mayor Bernero (Democrat) said that this bank would somewhat mitigate the pain of the foreclosure catastrophe by purchasing mortgage portfolios from the small banks in the state and setting up partnerships with private banks for projects aiming at economic development. Bernero stated, “Hundreds of job-creating projects are still on hold because Michigan businesses and entrepreneurs cannot get bank financing. We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs.”

Bernero took his inspiration from the experience of North Dakota. The Bank of North Dakota was made its debut in 1919 and is an agency for economic development. This “banker’s bank” reduces the loan risks that other private banks face and assists them to fund bigger plans. Farmers, students and business entrepreneurs avail of cheap loans from it. Most of the funds of the state are deposited with it. During the last ten years the bank was instrumental in pouring $300 million as profits into the treasury of North Dakota.
At a news conference in Michigan Bernero came forward with similar plans for Michigan. For the Democratic gubernatorial nomination he is pitted against Andy Dillon the speaker of the House and State Rep. Alma Wheeler Smith. The primary is due to be held on 3rd August. Neither Dillon nor Smith commented on the plans suggested by Bernero.

Apart from the Mayor of Lansong there are others who are keen to repeat the successful move by North Dakota. In Florida and Oregon gubernatorial candidates have made suggestions along the same lines. Legislators in Washington, Michigan and Vermont are thinking of introducing legislation that would enable the setting up of similar banks.

The Democrats in Senate in their press release said that Michigan should sell bonds, approved by voters, to set up Michigan Development Bank that would be owned by the state. Their estimate is that with a starting capitalization of $150 million the bank would be enabled to lend $1 billion to small entrepreneurs, students as well as farmers. It would also be able to offer credit card facilities charging small interest to consumers.