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North Dakota’s State-Owned Bank Good for Business

Gina-Marie Cheeseman
| Thursday April 16th, 2009 | 0 Comments

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“California’s the place you ought to be,” according to the theme song of the television show The Beverly Hillbillies. Perhaps now North Dakota is the place to be located if you want to start a business. It is one of four states that is not insolvent, and has the only state-owned bank in the U.S., the Bank of North Dakota (BND). Both North Dakota and BND have managed to insulate themselves from the present economic crisis. According to Creighton University’s Economic Outlook, the recession did not begin in North Dakota until January. In fact, North Dakota gained 3,000 jobs between the beginning of the national recession and January.
Created in 1919 by the state legislature, BND opened with $2 million capital and today operates with over $160 million of capital. Last month, Mother Jones featured an interview with the president of BND, Eric Hardmeyer. The article pointed out that BND “earned a record profit last year even as private-sector sector corollaries lost billions,” and has over $4 billion under management.


BND is not a member of the Federal Depository Insurance Corporation (FDIC) because its deposits are guaranteed by the state. By law the state has to deposit all its funds in BND, making it the depository for all state tax collections and fees.
Hardmeyer calls the bank’s funding a “captive deposit base.” He said that BND takes funds and puts them “back into the state of North Dakota in the form of loans.” BND provides a “dividend back to the state,” according to Hardmeyer. This year the dividend will be “somewhere north of $60 million,” and half of the banks profits will be put back into the state general fund.
The stated mission of BND is “encouraging and promoting agriculture, commerce and industry” in North Dakota. One way it accomplishes its missions is through the Partnership in Assisting Community (PACE), which began in 1991. Through PACE, BND partners with local communities to expand the economic base of North Dakota communities. BND participates participates in loans at a rate which is determined by the economic strength of the community (between 50 to 80 percent). BND and the local economic development group “buy down” the interest rate of the loan to three points below prime.
PACE includes a Biofuels program that was created to buy down the interest rate on loans to biodiesel and ethanol production facilities, livestock operations, biofuels retailers and grain handling facilities.
Two other BND programs look particularly attractive for new businesses. The New Venture Capital Program provides financing through debt and equity investments up to $300,000 for new or expanding businesses in the state. The companies must show “clear proof of completed product development and market acceptance as evidenced by growing sales,” according to BND’s website. The Beginning Entrepreneur Loan Guarantee Program provides financial institutions with an 85 percent loan guaranty for loans to new businesses.


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