Our latest Plan V-TV show?
Episode 25 – How a Vermont public bank can benefit our Vermont citizens, our schools, our communities, and our Vermont economy as a whole, featuring Henry Jacqz and Gwen Hallsmith of Vermonters for A New Economy.
The big takeaway? A PUBLIC bank for Vermont could help us solve multiple problems at once – including ever increasing debt, lack of funding for public schools and our public Commons, lack of access to entrepreneurial capital and loans for our farmers, our small businesses, and our students, and ever-declining money in Vermont’s General Fund.
Read on, and then get involved in championing a public bank for Vermont!
Capitalizing the Local Economy
The core mission of the Bank of North Dakota is to cultivate the state’s economy by supporting local banks and credit unions. The more these community-based financial institutions flourish, the thinking goes, the more capacity they have for financing new and growing businesses. BND works with almost all of the state’s 89 local banks and many of its credit unions.
Its business and farm loans, which comprise half of its lending, are almost exclusively “participation” loans. These loans are originated by local banks and credit unions, but BND provides part of the funds. In doing so, BND expands the lending capacity of the state’s local financial system. At the end of 2014, BND had almost $2 billion in participation loans in its portfolio, an amount equal to 10 percent of the total value of loans outstanding on the books of the state’s small and mid-sized community banks and credit unions. This partnership helps local banks compete is by enabling them to make larger loans than they could on their own. As their business customers grow and require larger loans, North Dakota’s local banks, with the support of BND, can continue to meet their needs, rather than lose these borrowers to large out-of-state banks.
Another segment of BND’s portfolio is comprised of mortgages. About 20 years ago, the bank began buying home loans made by local banks and credit unions. At the time, local banks were looking for an alternative to the conventional secondary mortgage market. They no longer wanted to sell their home loans to Wells Fargo and other large banks, a practice that was giving their biggest competitors a steady stream of new customers. BND stepped in and offered to purchase their mortgages instead. This gave local banks a way to move loans off their books, thus freeing them up to make new loans, but without handing the business to their competitors.
This arrangement also benefits borrowers. First, BND services the mortgages it buys, ensuring that North Dakota homeowners continue to have in-state servicing for their loans. Second, it ensures that the mortgage interest homeowners pay each month stays in the state rather than flowing to Wall Street. In 2010, BND purchased about 7 percent of the home loans originated in the state. It currently holds about $650 million in residential mortgages. Between BND’s mortgages and those held by local banks and credit unions, roughly 20-25 percent of the state’s mortgage debt is held and serviced within North Dakota.
The final component of BND’s loan portfolio consists of student loans. This is the only area of lending in which the bank works directly with borrowers. BND offers loans to state residents enrolled in schools located anywhere, as well as to out-of-state residents attending schools in North Dakota or any adjacent state. Its interest rates are widely regarded as some of the lowest in the country. In early 2015, the bank’s rates were about 2 percent for a variable-rate loan and 5 percent for a fixed-rate — substantially lower than the 10-15 percent rates typical of private student loans. In April 2014, the bank launched a new program that allows residents to consolidate their student loan debt. By the end of the year, the bank had refinanced over $100 million in student loans, saving borrowers money by cutting their interest payments.