Pros and cons – Could a state bank help local businesses?

In early April, Gov. Sununu announced New Hampshire would move its cash reserves – about $50 million – from national banks to New Hampshire banks. The goal is to increase local banks’ asset base so they will loan more to small businesses.

Just last year New Hampshire considered another way to use government assets to increase loan opportunities: creating a state bank.

A state bank is a bank owned and run by the government. A state bank receives deposits of state money and can choose to accept private money, as well. Like any other bank, a state bank pays interest on deposits, makes loans, and so on. The state gets to keep the bank’s income.

North Dakota is the only state with its own bank. The Bank of North Dakota was established in 1919, largely to give loans to local farmers. Now the bank partners with local financial institutions to make many different kinds of loans, from student loans to business loans. The bank also turns a profit for the state.

Ideally a New Hampshire state bank would create more inexpensive loan opportunities for government agencies, small businesses, and nonprofits. This is particularly intriguing during the coronavirus emergency, when small businesses and nonprofits are clamoring for loans. Beyond the state of emergency, a state bank could choose to loan to businesses and nonprofits that are working on projects for the public good. 

State banks could potentially offer services to marijuana businesses. Because marijuana is still illegal at the federal level, banks have been reluctant to work with anyone growing or selling marijuana. As a result, marijuana businesses are forced to work with duffel bags of cash.

A state bank wouldn’t magically make mone. The state would have to pay bank employees, cover overhead at branch locations, obtain a charter, and more. This is on top of the initial capitalization (starting cash), which would be over $50 million.

Several quasi-public agencies in New Hampshire already expand the lending ability of local banks. For example, the New Hampshire Housing Finance Authority finances affordable housing projects. The New Hampshire Business Finance Authority offers business energy loans, early stage capital, bond financing, and more. These agencies have different areas of expertise, and a state bank would lack specialized knowledge. There are also opponents who worry a state bank moves away from capitalism towards socialism. 

In 2019 the New Hampshire House killed a bill to create a state bank, HB 367. There are no 2020 bills on the topic, and the House and Senate have suspended legislative activity during the coronavirus emergency.

Still, the idea of a state bank could make a comeback in 2021.