The Bank of North Dakota: how a state-owned bank overcame ideological and political opposition on the road to success

Prairie Public Television, “The Bank of North Dakota” (2005)

In an age in which large private banks have a stranglehold over governments and economies, and by extension over entire countries and their societies and resources, I find it reassuring that in the US there is one bank that actually serves the needs of its clients – and that’s because it’s a state-owned and controlled bank.

Using a mixture of historical archive material, voice-over narration by Doug Hamilton, some re-enactment and interviews with North Dakota state politicians, bank staff including BND head Eric Hardmeyer, an economist and a historian, the program explains why and how the Bank of North Dakota was conceived and incorporated in 1919. In the early years of the 20th century, North Dakota state was heavily dependent on agriculture as a mainstay of its economy. The very nature of agriculture, especially wheat farming and cattle herding, meant that the people of North Dakota had very little control over aspects of production, distribution and sale: weather determined whether the harvest would be good or not; railway companies controlled the transport and distribution of agricultural products in and out of the state; and the price of the products depended very much on global supply and demand, and so the prices might be determined or even fixed by stock markets of the time. Descended from independent-minded and naturally sceptical immigrant folk, the North Dakotan farming community determined to control at least some aspect of the farming business and in 1916 the people got their chance: in 1916, the Non-Partisan League swept into power in the state, established an Industrial Commission and passed two bills that created the Bank of North Dakota and a state-owned mill and elevator, and gave the BND the power to issue state bonds to raise money to lend to farmers at reduced interest rates.

The state-owned BND ran up against considerable opposition from out-of-state private banks and the business-backed Independent Voters Association. Eventually the NPL was forced from office and the functions of the BND were severely reduced from the powers granted it by the legislation passed in 1919. The bank ended up being controlled by the Independent Voters Association which allowed the bank to continue to lend to farmers. During the Great Depression, the BND decided to stop foreclosing on farmers’ homes and properties if the farmers were still living there. World War II brought prosperity to North Dakota as global demand for wheat and other agricultural products gew. In a way, control by the IVA and the events of the 1920s to 1950 with two credit crises were a blessing to the BND as the restrictions placed on the bank’s activities forced it to concentrate on North Dakota’s economic development by accepting individual and small business deposits, providing loans to individuals, households, students and small to medium-sized businesses and sticking strictly to those functions. The bank has never been tempted to expand outside state borders and move into the financial markets.

Produced on a modest budget, the program describes the bank’s early struggles, its present position as a development bank and its future as a significant player in North Dakota’s economic development. At the time of its making, the oil industry in North Dakota was in its infancy so there is not much information about how the BND is assisting oil exploration and extraction. There is not much information about the challenges and problems the BND might have faced in recent years so the program runs a little like a 26-minute advertisement singing its praises. People suspicious of state-owned banks might turn up their noses at what seems to them an endorsement for evil “socialist” financial schemes. However the recent economic performances of North Dakota state compared to most other US states – North Dakota often coming first in the nation in economic performance and financial solvency – must owe a large debt to the BND.

Unfortunately there is not much in the program that people in other parts of the US wanting to know how they can establish similar state-owned banks can learn from the BND’s example. The BND’s success is due in part to the unique economic and historical circumstances of North Dakota in the mid-20th century: the state’s economy for a long time was perhaps much less diversified than some other states’ and at times it was a backwater so large corporations that would have opposed the BND ignored the state and its financial activities for a long time. With oil exploration and for-profit alternative energy schemes having now arrived in the state, it remains to be seen if the BND can rise to the challenges of dealing with a rapidly diversifying economy bringing in large cash flows and of making the best use of that money while remaining true to its original functions as set down by the Non-Partisan League back in 1919.

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