LAS CRUCES — Las Cruces says New Mexico should consider a public bank.

At its Monday meeting, the first of the year, the Las Cruces City Council voted to support New Mexico exploring the feasibility of a state public bank.

What is a public bank?

A public bank is a bank that's owned by the government (in this case, it'd be New Mexico), funded by taxpayers and accountable to politicians and its owner government.

State-owned public banks take deposits from state revenues like taxes, fees, fines and interest from investments and make loans to the owner government or governmental entities.

They don't take deposits from private individuals.

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They are governed by a charter and regulated and run by a state agency. Public banks are expected to follow the same state and federal guidelines as a private bank.

The operations of the bank are run by professional bankers serving a public-driven interest. These community-oriented goals are laid out often in the bank's mission statement.

The revenue earned by the bank goes back to the state and can be reinvested in the state's priorities such as infrastructure, education or local business. Public banking proponents say not having to pay out big bonuses or dividends to shareholders makes the bank retain more profit.

Public banks are able to loan at lower interest rates than commercial lenders since they are not beholden to shareholders, according to a New Mexico-based pro-public banking advocacy group called the Alliance for Local Economic Prosperity.

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Right now, North Dakota is the only state in the U.S. to have its own state-run bank. The Bank of North Dakota just celebrated its 100th year and posted record profits for the 15th year in a row in 2018.

A public bank's aim is to save governments money by cutting out the private middlemen banks which charge higher interest rates for loans and bank fees for deposits, according to the Public Banking Institute.

Do they compete with private banks?

The goal of public banks isn't to compete with private banks, but rather to partner with them to support loans the community banks can't take on because the loan amounts are too large or they have other lending restrictions, according to the AFLEP and PBI.

In this way, proponents say public banks spur investment in emerging industries and entrepreneurship by lowering the risk for commercial lenders and lowering the rate for borrowers.

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They've proven to stay healthy during times of financial crisis. The Bank of North Dakota increased its loans and letters of credit to local banks amid the 2007-08 financial crisis and saw less delinquent loans than comparable banks in the following years, according to one study done by the Federal Reserve Bank of Boston.

Massachusetts and eight other states considered the viability of a state bank after the recession, the study said.

A proposed State Bank of New Mexico wouldn't hold private bank accounts or do retail banking of any kind. The AFLEP says this makes it more efficient to operate because retail services and products don't need to be provided. That means it's cheaper to run, with a smaller staff and fewer expenses.

Any drawbacks?

Many might argue that a government-owned bank is antithetical to America's capitalist economy, but North Dakota boasts its state bank has helped prop up local banks and led to more banks per capita than any other state in the nation.

Getting the public bank funded would be a major hurdle. Startup capital could cost billions. A feasibility study conducted by Massachusetts in 2011 showed startup costs for a state bank there could tally up to $3.6 billion.

Since the bank is still accountable to elected officials, political influence is also a worry. When New Jersey Gov. Phil Murphy recently signed an executive order creating a board to explore a state bank, the New Jersey Bankers Association criticized the idea, saying it could become a political tool.

Is New Mexico on brink of public bank?

There's no current legislation creating a public bank planned for the upcoming legislative session and nothing currently studying its feasibility.

State Sen. Jeff Steinborn, D-Las Cruces, sponsored a memorial measure during the 2019 legislative session last January that would've created a feasibility study on the implementation of a New Mexico public bank, but the Legislature adjourned before the proposal got a vote.

A similar public bank research measure was introduced as a memorial in the state House of Representatives last year, but the Legislature adjourned before it got a vote.

Santa Fe considered the feasibility of a city-chartered public bank from 2014-2018, but the task force convened by the city to study the issue concluded the city wasn't large enough to support such a bank on its own.

In October 2018, with the recommendation of its Public Bank Task Force, the Santa Fe City Council passed a resolution to support consideration of a state public bank.

Michael McDevitt can be reached at 575-202-3205, mmcdevitt@lcsun-news.com or @MikeMcDTweets on Twitter.

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