BUSINESS
03/07/2012 04:16 pm ET Updated Mar 07, 2012

More States Pushing For State-Owned Banks In The Wake Of Financial Crisis

Tired of giving business to big banks? Maybe you can become the state's customer instead.

More U.S. states are exploring the possibility of establishing banks owned by their state's government, according to a recent American Banker report. Currently, only North Dakota has such a bank, but as many as 17 other states have introduced legislation to create something similar.

The push to establish and fund state-owned banks may be a reflection of the post-financial crisis landscape, in which states and municipalities are facing budget crises and scrambling to make ends meet. In addition, banks of the kind found on Wall Street are becoming increasingly regarded with suspicion.

As big banks continue to impose little-loved fees on consumers, while trying to chip away at the regulations aimed at preventing another financial crisis, more Americans are looking for alternatives.

The number of new accounts at credit unions more than doubled in 2011, according to the National Credit Union Administration, a jump that may have been assisted by Bank Transfer Day, a November social media push to get customers to move their money out of banks.

Some say state-owned banks would offer another way, besides credit unions, for ordinary banking customers to reclaim autonomy from Wall Street. Advocates for state-owned banks say they would provide a safe haven for funds, make it easier to get loans at the local level and add millions of dollars to state budgets. They point to the Bank of North Dakota, which has generated some $300 million for the state over the past 15 years.

Opponents and skeptics, on the other hand, say that state banks would be expensive to establish, and would represent unwelcome competition to existing private banks, again according to American Banker. They add that local borrowers wouldn't necessarily feel the benefits right away, even though the weak economy makes such concerns pressing.

Some banks, meanwhile, might actually have a reason to support the creation of state-owned banks: it would give them a chance to shed assets and fly under the radar of government watchdogs. Once a bank has $10 billion in assets, it triggers all kinds of regulatory attention from the Consumer Financial Protection Bureau -- meaning that many firms are trying to hover below that threshold if they can.

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