Making Democracy Work

Public Banking Study

Public Banking Study

Is it time for a new way to finance state development?

At its convention in May, 2013, the LWVVT adopted a study of the feasibility of a public bank. The scope of the study is as follows:

Scope: To explore the pros and cons of forming a public bank or using an existing entity to finance state lending operations. This will require considerable study of all alternative ways of saving tax payer dollars, the pros and cons of decoupling from the usage of Wall Street monies, and to monitor the legislative task force's findings.

In last year's political campaigns and before, a number of candidates proposed the establishment of a public bank to fund important projects in all areas of government; education, infrastructure, health care, etc.  To date, only North Dakota has such an institution. In response to the interest expressed in a public bank, the Senate Government Operations Committee has introduced a bill (S.55) to study a financing and lending efficiency task force with a goal of increasing efficiency in state government finance and lending operations. In the event that this results in a proposal to establish a public bank, the results of this study should put us in a position to advocate on the issue.


There have been two types of banking for thousands of years, public and private. In the public model, interest and profits belong to the community. Private banks operate for private gain. That in a nutshell is the basic difference between the two. When a community government owns its own bank, it keeps its revenue in that bank, sets its own interest rates, and reinvests its money locally. When a community government collects revenue and puts it into a private bank, that bank has as its major focus maximizing profits for its owners and executives.

Public banking in the Middle Ages consisted of the government, frequently the king, loaning money directly to a farmer or an artisan at a low rate of interest, with the borrower paying the loan back directly to the monarch. In England the amount of the loan was written on both ends of a stick, the stick then being broken, with the king getting the longer piece. The accuracy of the account was verified by the unique fit of the pieces of the stick. Thus records were kept. This practice, by the way, gave origin to the old cliché, "getting the short end of the stick".

In Western countries today, private banking dominates. In the BRIC countries, Brazil, Russia, India, and China, most banks are publically owned. Those countries where banks are publically owned grew at a rate of 92.7% during the first decade of the 21st century. Where the banks are privately owned, the growth in GDP was 15.5%. So based on this data, why don't we see more public banking?

In this country, only North Dakota owns its own bank. During the recent credit crisis it was the only state to report a budget surplus every year since 2008. It has the lowest unemployment rate, the lowest credit card default rate, and no state government debt at all. Lest we think that North Dakota's oil reserves were the causative factor of these outcomes, keep in mind that the oil rich states of Alaska and Texas do not see the same result.

States deposit their money at minimal interest in Wall Street banks, then borrow money at a much higher rate. If 10 million taxpayer dollars are deposited in a private bank, where interest rates are running below one percent, and later on the state has to borrow money at 5% interest to tide it over until more revenue comes in, we taxpayers foot the bill. In North Dakota, the state deposits its revenues in the Bank of North Dakota. This money is loaned at low interest rates to North Dakota residents, which ensures that a high proportion of state funds is being invested in the state economy. The earnings on those loans are put back in the state treasury. This enables North Dakota to fund projects without incurring new debt.

All state revenues in North Dakota are deposited into the state bank. It doesn't take individual deposits. All the assets of the state are assets of the bank. That's a lot of collateral! The BND is obligated by its mission statement to serve the community. It passes low interest rates on to public agencies, local businesses, and residents. When the state takes on an infrastructure project and borrows the money from BND, the bank returns the interest to the state in the form of an annual dividend. This reduces the project cost by an average of 40% over the life of the loan. All interest earned by the BND is put back into the state treasury. It becomes a form of revenue for the state that does not involve increased taxes.

If the money was borrowed from a private bank, the business model that exists there requires the bank to take advantage of low interest rates to extract as much debt service from their customers as the market will bear. Private banks are legally bound to put first the quarterly profits of their shareholders. Those folks get that extra 40%.

There is an interest in Vermont and about 20 other state governments to look as the results of having a state bank in North Dakota. Included here* is a very basic view of what a state bank can do to aid the economy of the state. Please sign on to the study. LWVVT would like to be in a position to testify on this issue when it reaches the state legislature.

  • Material above was often quoted verbatim from the book The Public Bank Solution by Ellen Brown.

The League's Position


Montpelier Bridge special supplement

Public Banking FAQs

Building State Development Banks

Demos, Putting Vermont Money to Work for Vermont

VT Legislative Joint Fiscal Office, Preliminary Review

Tom Sgouros, Nuts and Bolts: A Public Banking Took Kit

Michael Taub, Vermont's False Fiscal Dilemma

Gwendolyn Hallsmith, Money for Energy in Vermont

Yolanda K. Kodrzycki and Tal Elmatad, The Bank of North Dakota: A model for Massachusetts and other states?, New England Public Policy Center Research Report 11-2, May 2011

Interview with staff of Vermont State Joint Fiscal Office

Interview with State Treasurer Beth Pearce

Vermonters for a New Economy, Exploring Public Banking in Vermont, Preliminary Findings

Vermonters for a New Economy, Exploring Public Banking in Vermont, final report, December 2013.

The following is testimony taken by the Senate Government Operations Committee and the Senate Finance Committee on S.204, a bill which would not establish a state bank per se, but would give the Vermont Economic Development Authority (VEDA) banking powers.

State Treasurer Beth Pearce, Analysis of S.55 and S.204

Beth Pearce, State Bank Proposed Advantages and Responses

Beth Pearce, Memo from Public Resources Advisory Group

Mark Armstrong, Public Banking Institute, Testimony regarding the Bank of North Dakota

Robert Giroux, Exec. Dir. Vermont Municipal Bond Bank, Testimony on S.55 and S.204

Tom Sgouros, Public Policy Consultant, Testimony on expanding the function of VEDA

Gary Murphy, Testimony regarding S.204

Senator Anthony Pollina, Testimony to Sen. Finance Committee from Sen. Government Operations Committee

Jo Bradley, Vermont Economic Development Authority, VEDA Technology Loans

Panel Discussion, featuring Washington County Senator Anthony Pollina; Vermont State Treasurer Beth Pearce; Gwen Hallsmith, founder of Global Community Initiatives; and Chris D'Elia, President and Treasurer of the Vermont Bankers Association was held at the State House in April. It can been seen at <>; scroll down the playlist to "Spotlight on Vermont Issues", and then on the Public Banking Forum. This program gives a good overview of the pros and cons of the issue.