LANSING, Mich. (AP) — Lansing Mayor Virg Bernero on Tuesday proposed having Michigan follow the lead of North Dakota and open a state-owned bank that could make low-interest loans to businesses and college students.
The Democratic gubernatorial candidate said the state bank also could ease the foreclosure crisis by buying down mortgage portfolios held by smaller banks in Michigan and partner with other private banks on economic development projects.
"Hundreds of job-creating projects are still on hold because Michigan businesses and entrepreneurs cannot get bank financing. We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs," Bernero said in a release.
Founded in 1919, the Bank of North Dakota serves as an economic development agency and "banker's bank" that lessens the loan risks of private banks and helps them finance larger projects. It offers cheap loans to farmers, students and businesses and is the repository for most state funds. During the last decade, the bank funneled almost $300 million in profits to North Dakota's treasury.
Bernero unveiled the plan to create a similar bank in Michigan at a Detroit news conference. He's running against House Speaker Andy Dillon and state Rep. Alma Wheeler Smith for the Democratic gubernatorial nomination in the Aug. 3 primary election. Neither commented immediately on Bernero's idea.
The Lansing mayor isn't the only politician thinking of copying North Dakota's state-run bank. Gubernatorial candidates in Florida and Oregon have suggested doing so, and lawmakers in Michigan, Vermont and Washington state are considering legislation that would set up similar institutions.
Senate Democrats issued their own press release Tuesday, suggesting that Michigan sell voter-approved bonds to set up a state-owned Michigan Development Bank. With an initial capitalization of $150 million, they estimate the bank could lend up to $1 billion to small businesses, students and farmers and offer low-interest credit cards to consumers.
"Our economy has stagnated due in part to stale thinking in Lansing, and this is just the type of innovative idea we need to create real economic change, using our own money to rebuild the state," state Sen. Gretchen Whitmer, D-East Lansing, said in the release.
Bernero campaign spokesman Jamaine Dickens said Bernero is glad Senate Democrats are proposing a similar idea. He added it's not a partisan issue but a "commonsense approach to a financial crisis that Michigan is facing."
Michigan Bankers Association spokeswoman Gail Madziar said she doesn't know all the details of the two plans, but she doesn't think having a state-owned bank will make loans that much easier to get.
"If you take a look at what's holding back the economy and what's holding back the lending, it's not that banks that don't want to lend, it's that collateral values have dropped," she said. "The amount that can be lent to you based on that collateral is lower. And that's not going to change" until the economy picks up.
There's also a risk that some loans may not get repaid, hurting the state's bottom line.
"I would hate to see taxpayers on the hook for any losses that a state bank might incur," Madziar said. The MBA represents 169 banks statewide.
