Before the American Revolution, every British colony except Virginia had public banks that lent money in exchange for interest and operated under charters that required such banks to serve the public. After the war, public banking was extended to new states.
Today, just one such public bank exists in the country: The Bank of North Dakota.
It’s time to revisit the concept, according to Christine A. Desan, Harvard Law School’s Leo Gottlieb Professor of Law, who convened a two-day summit on Nov. 6 and 7 to promote public banking as a tool for community development and economic justice.
“Public banking is revolutionary; it is also extremely old-fashioned,” Desan said in remarks to open the event. At the country’s founding, “Americans understood money and credit as public projects.” But, over time, “Economics as a discipline evolved in a way that identified the market with the private.”
The Conference on Public Banking for Community Development, a joint effort with the Center for Impact Finance at the University of New Hampshire, included dozens of participants: public bank organizers, officials from community development financial institutions (CDFIs), along with members of Massachusetts Gov. Maura Healey’s administration, advocates, financial experts, and representatives from civic organizations. Don Morgan, the president and chief executive officer of the Bank of North Dakota, was a featured speaker.
Desan teaches about the political economy of capitalism. She has written or edited several books, including “Making Money: Coin, Currency, and the Coming of Capitalism.” In 2021, she and Nadav Orian Peer S.J.D. ’16 drafted a Massachusetts bill to create a state-owned bank that would return to a public mission and prioritize small- and medium-sized enterprises, affordable housing, cooperative business models, and climate mitigation efforts. The bill is under legislative discussion.
“What about all the good ends for credit that don’t fall within the profit imperatives of commercial banks?” she asked at the conference. “What about the small borrowers whose projects don’t scale in a way that makes it cost effective for a bank to lend to them … borrowers who, given the discriminatory treatment visited on some communities for generations, don’t have credit histories and collateral. … None of those things would get funded by commercial banks … Public banking is a powerful vehicle for doing just that.”
Over the years, Desan has involved her students in efforts to revive public banking in Massachusetts and beyond. According to recent research by her and students, demand for public banking is high in Massachusetts, which has 32 CDFIs. These private-sector financial institutions have a double bottom line: focusing on economic gains and community development. In Massachusetts, these entities generally deploy more than 80 percent of their capital in loans, according to data that Desan’s students gathered and that was shared at the event by University of New Hampshire Professor Michael Swack.
“That’s probably too high if you’re looking at liquidity issues,” he said. But “what that showed is there is a strong demand in Massachusetts for the kind of lending CDFIs do.”
In North Dakota, the public banking model has worked well for more than 100 years, said Morgan. The bank, which was founded to promote agriculture, commerce, and industry, has grown from $2 million in capital at its founding to more than $10 billion in assets. Over the decades, it has played an important role in stabilizing and supporting North Dakota, its people, and its economy, including by buying foreclosed farms during the Great Depression, renting them back to farmers for $1, and then selling them back to the farmers at reasonable prices once they had recovered.
In addition to its market-rate programs in participant lending, student loans, and forthcoming fintech offerings, the Bank of North Dakota has continued to provide, at below-market rates, disaster relief and loans for schools, clean energy, and infrastructure projects, among other initiatives. It also returns a profit to the state of about $400 million annually.
The bank’s mission means its priority is protecting deposits. Morgan said when oil prices tanked in 2014 and 2015, the bank sold $2 billion from its portfolio to support North Dakota’s economy.
Morgan added that there are challenges in running a state-owned, for-profit bank, including dealing with legislators who pass laws that affect the bank but do not directly oversee its operations. (An industrial commission and, by extension, an advisory board do.)
“If I’d run hotter on loans, I’d make more money,” he said. “Some legislators … want me to do that, so … I spend a lot of time educating our legislators on: ‘I could do that, but you’re not going to like the risk profile I have to take, and if oil goes down … and you guys are having budget deficits, you’re going to be glad I didn’t because I’m going to be the one providing liquidity you can use.’ ”
Other panels during the conference focused on the credit needs of CDFIs, on comparative models for proposed public banks in other states, on risk management, on organizing around public banking, on interfacing with the banking industry, on policy and strategy, governance and accountability, and on the future of the field.
Desan told participants that public banking could help address one of the country’s most challenging problems: inequality. She pointed to data from Forbes that billionaires saw their fortunes grow by an average of $2 million per day in 2024; meanwhile, 25 percent of American adults have less than $1,000 in savings. (More than 50 percent, except among the Boomer generation, have less than $5,000.)
During the Great Recession, she said, the federal government “advanced literally trillions of dollars to save the complex engineering that undergirds our system of money and finance.”
“It’s less clear that it saved the people whom the engineering is meant to save,” she said.
“Inequality … is the crisis of our day. Constructing a system of money and credit is enormously difficult. We are in a moment that requires change, and that change takes creativity and thought and insight. It takes the contribution of many minds with many types of experience.”
Desan asked the conference participants to be part of that process.
“We invite you to be both revolutionary and old-fashioned,” she said. “Let’s think together about one of the central issues of our times, which is finance and its relationship to public welfare.”
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