Public Banking to the Rescue
How BND Saved Grand Forks in 1997
Written by Jim Morrow and Ira Dember, PBI Volunteers
Folks in Grand Forks, North Dakota will never forget April 1997, when
record flooding of the Red River and major fires devastated the city.
They also won't forget that it was Bank of North Dakota--the nation's
only bank owned by a state--that put people above profits. The BND
rushed to the rescue with financial flexibility and generosity of spirit
in the public interest that no privately owned bank could match.
From this valley they say you are leaving.
We will miss your bright eyes and sweet smile,
For they say you are taking the sunshine
That has brightened our pathway a while.
Unlike the cowboy's lament, for Grand Forks, sunshine was part of the
problem. Most years, the region's winter snows melt gradually over a
span of months. But by mid-March, temperatures had hovered below 40
degrees for four months straight. Ten feet of undiminished accumulated
snow pack loomed in the Red River watershed. Beginning March 18th,
temperatures suddenly warmed above freezing and remained high for 27
days straight. Runoff from snowmelt swelled the Red River and its
tributaries into torrents.1
So come sit by my side if you love me.
Do not hasten to bid me adieu.
Just remember the Red River Valley,
And the cowboy that loves you so true.
The National Weather Service predicted the river would crest at 49
feet, equal to the area's highest previous flood level in modern
history. Sandbag dikes, built to handle a flood at that level, protected
the town--until they didn't. On April 16 the Red River surged to 49
feet and, in subsequent days, kept rising: 50, 52, 54 feet. On April 18,
floodwaters breached a dike, then others.2 All hell broke loose.
Mayor Pat Owens ordered 50,000 people to evacuate3-at the time the
largest US evacuation since Sherman's burning of Atlanta, 133 years
earlier. But Grand Forks' troubles had only begun. In a turn of events
that would make Murphy blush, floodwaters shorted electrical equipment
in a downtown building. National news media carried dramatic pictures of
firefighters struggling to fight blazes in buildings surrounded by
water. Fire spread to apartments where 40 stalwarts had defied Mayor
Owens' evacuation order. Emergency workers had to rescue them from both
fire and flood before firefighting began. The inferno consumed 11
buildings, 60 apartments, and the Grand Forks Herald, with its 120-year
archive.4
The Toll
Incredibly, not a single person in Grand Forks died as a result of
these twin disasters. But the town and its sister city, East Grand Forks
on the Minnesota side of the river, lay in ruins. Floodwaters covered
virtually the entire city and took weeks to fully recede.5 Property
losses topped $3.5 billion.6
The flood inundated 16 of 22 local schools, 315 business and a
staggering 75% of area homes. In all more than 5,000 businesses were
affected by an earlier blizzard plus the flood and fire. Some businesses
sustained only minor damage; others were totally destroyed.7
Enter BND - North Dakota's Public Bank
Soon after floodwaters swept through Grand Forks, the state-owned Bank
of North Dakota began taking unprecedented action to help families and
businesses recover. Led by BND's then-president and CEO John
Hoeven--future North Dakota governor and US senator--the bank quickly
established nearly $70 million in credit lines:8
· $15 million for the ND Division of Emergency Management
· $10 million for the ND National Guard
· $25 million for the City of Grand Forks
· $12 million for the University of North Dakota, located in Grand Forks
· $7 million allocated to raise the height of a dike at Devil's Lake, about 90 miles west of Grand Forks
BND also launched a Grand Forks disaster relief loan program and
allocated $5 million to help other areas affected by the spring floods.
With BND leading the way, local financial institutions matched these
funds, making available more than $70 million altogether.9
Flooding swept away many jobs, leaving families without a livelihood.
BND coordinated with the US Department of Education to ensure
forbearance on student loans. The bank also worked closely with the
Federal Housing Administration and Veterans Administration to gain
forbearance on federally backed home loans and to establish a center
where people could apply for federal/state housing assistance. Further,
BND worked with the North Dakota Community Foundation to coordinate a
disaster relief fund, and the bank served as the fund's deposit base.10
BND didn't stop there. Agriculture has long been a North Dakota
economic mainstay. In the Great Depression, BND helped keep families on
their farms.11 With the record 1997 spring floods, many farm families
again faced financial ruin. BND responded by reducing interest rates on
existing Family Farm and Farm Operating programs. Families used these
low-interest loans to restructure debt and cover operating losses caused
by wet conditions in their fields.12
To help finance the disaster recovery, BND obtained funds at reduced
rates from the Federal Home Loan Bank, in turn enabling the
publicly-owned bank to pass along cost savings to flood-affected
borrowers in the form of lower interest rates.13
Some impacts can be readily measured; others may be deduced. Between
the 1997 floods and 2000, Grand Forks lost 3% of its population. Sister
city East Grand Forks, right across the river in Minnesota, lost 17% of
its population in the same period.14 Coincidence? Or did Grand
Forks--one minute away by car--achieve a more rapid, more graceful
economic recovery, in part because of what North Dakota's unique,
publicly-owned bank accomplished there? Likely, one could also compare
the results of BND's efforts to what happened in New Orleans, after
hurricane Katrina, and end up with the same answers.
Conclusion: Unparalleled Advantage
In 1997 the people, businesses and institutions of Grand Forks, North
Dakota experienced firsthand the unparalleled ability of a
publicly-owned bank to place the public interest above all other
considerations. Because BND has no shareholders other than the State of
North Dakota, it has far-reaching flexibility and, in emergencies like
the 1997 flood, can act quickly to catalyze and coordinate resources
ranging from federal agencies to local community banks.
No other institution in the wake of 1997's overwhelming disaster
combined the credibility, clout, capital, and connections to protect the
public interest as BND did for North Dakota families and small
businesses.
The same holds true today. People and businesses across America are
drowning in unsustainable debt. They face a flood of foreclosures, many
with home values that are "underwater." Meanwhile conventional banks
keep credit tight, drying up the very resource that businesses need to
hire more people and get the economy moving again.
If each state had its own public banking institution, today's drastic situation might be very different.
Just ask anyone in Grand Forks who lived through 1997.
Originally published on
PBI website. See link for footnotes.
_________________________
BND's Loan to Core Deposit Ratio -- the Key to its Success
Discussion of BND Risk and loan to core deposit ratio
Standard & Poors discusses the loan to core deposit ratio for BND in last December's Research Update (see page 4):
http://banknd.nd.gov/financials_and_compliance/pdfs/SP_BankofNorthDakota_December2011.pdf
The bank's funding is "average" and its liquidity is "adequate," in our opinion.
Funding is different for BND from that of other commercial banks.
By state law, all state funds and funds of state institutions are
deposited with BND. None of those deposits are federally insured, but
they are guaranteed by the state. Noncore deposits provide the majority
of BND's funding, while core deposits constitute roughly 26% of its
funding base. Because core deposits do not fully fund the loan portfolio, the loan-to-deposit ratio is high at 259%.
Noncore deposits primarily consist of large certificates of deposit
from local state agencies, which the law requires them to deposit at
BND. When those state-sourced captive deposits are added to the core deposits, the loan-to-deposit ratio improves to 74%.
We recognize the stickiness of these deposits. The bank also has access
to additional funding from the Federal Home Loan Bank of Des Moines,
and it can borrow from the Federal Reserve discount window. The bank can
also enter into a repurchase agreement using the securities in its $584
million available-for-sale investment portfolio as collateral.
More Weekend Reading:
Fundamentals re. debt-based privatized money:
Introductory videos and other educational resources.
http://www.positivemoney.org.uk/videos/
Fundamentals of public banking:
Material on public banking throughout the world, including studies in the USA.
http://www.publicbankinginstitute.org/public-banking-research.htm
Information on Bank of North Dakota (BND) Loan Programs:
http://banknd.nd.gov/lending_services/index.html
Information on BND Returns, Credit Rating, and all Annual Reports:
http://banknd.nd.gov/financials_and_compliance/annual_reports.html
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