Tags: State | Owned | Banks | fed

Calls for State-Owned Banks On the Rise

Thursday, 29 Dec 2011 08:08 AM

Can't get a loan? A state-owned bank may soon help you out.

Calls for state-owned banks are on the rise in wake of the recession, tight credit and anger of bank bailouts.

"People are becoming more aware that our existing banking system isn't serving us," says Ellen Brown, one of the founders of the Public Banking Institute, a non-profit formed in January to advocate for public banking, according to USA Today.

Only North Dakota runs a state-owned bank, but 14 other states are at least considering opening similar institutions.

Supporters say North Dakota serves as an example that not all public institutions are wasteful: the state has run a budget surplus since the economic crisis began, and boasts an unemployment rate below 4 percent.
California, Hawaii and Massachusetts have passed legislation to explore the possibility of opening state-owned banks.

Lawmakers in Colorado, Montana, Pennsylvania and New Jersey may follow suit.

"In most of the states where bills were introduced last year, legislators are planning to introduce them again," says Sam Munger, managing director of the Center for State Innovation at the University of Wisconsin-Madison, which has researched the issue, USA Today adds.

"The banking collapse of 2007 made a lot of people nervous about too-big-to-fail banks."

The Federal Reserve recently unveiled new reserve requirements, requiring banks to set aside more capital to buffer them from external shocks similar to the Lehman collapse, which revealed that one bank collapse made the entire financial system vulnerable.

"A lot of the proposals are built around things that the Federal Reserve and other regulators believe did not work as well as they could leading up to the financial crisis," says Deborah P. Bailey, a director in Deloitte & Touche’s banking and securities group, according to the New York Times.

Capital reserve requirements and regulations outlined in the Dodd-Frank law "are designed to make sure that banks are strong and won’t need government help going forward," Bailey adds.

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