Senate Bill 5188 creates a state bank, but is it really necessary? »Publications» Washington Policy Center


Senate Bill 5188, presented by Senator Patty Kuderer (D), earlier this session would create a state bank for public, municipal, tribal and other entities to deposit funds. It also allows the state to borrow money against the value of deposits. The only other state that has a public bank is North Dakota, and that bank was established over 100 years ago to provide farmers with other options for borrowing from a regular bank.

Since 1919, banking has become a heavily regulated service sector and the problems that farmers faced with the availability of credit at the turn of the century no longer exist.

Despite this, lawmakers in Washington plan to create the first public bank in the United States in a hundred years.

Currently, municipal and government agencies deposit and borrow, as most businesses do, in the competitive private banking market. Bonds sold on behalf of the government are issued to private buyers to raise capital. Interest and loan charges on bonds are paid by the borrower, the taxpayer.

SB 5188 creates expansion of government authority and removes competition from loans and banking services. Municipalities today enjoy lower fees and interest rates due to competition in the free market, which cannot be guaranteed with a state monopoly. If we look at other government-run agencies, such as Labor and Industries (L&I), which have a monopoly on employer insurance, we can see the potential for high costs for services that are readily available in the industry. the private sector. In the case of L&I, no private insurance can be taken out, so L&I has no incentive to keep its rates low.

Another government monopoly without competition from the private sector is the Department of Job Security (ESD). This year unemployment insurance rates have skyrocketed and, as a business owner discovered, there is little or no oversight of agency pricing processes.

State banking was introduced as a concept at least 10 years ago and the state has spent at least $ 1 million in studies to determine if a state bank will operate. A 2018 study by the Washington State Treasurers Office (OST) independently compiled a comprehensive analysis of public bank studies that were conducted in 13 states and municipalities across the country, including the city of Seattle. This report concluded:

“After careful consideration of each study, the OST strongly recommends against adopting a public banking system. “The state treasurer’s office supports building Washington’s existing banking structure and does not support public banks due to the higher risk and lower return on investment compared to the current private banking system.” – Washington State Treasurer Duane A. Davidson

Not satisfied with the response provided by the state treasurer, lawmakers returned to the 2018 Supplementary Budget and provided the Bureau of Financial Management (OFM) with an additional $ 480,000 to re-study a state bank.

The real question should be: why do we need a state bank, not how to create one. With a well established and well regulated banking industry competitively priced, it seems like a waste of taxpayer dollars to create another government agency that is only duplicating what already exists. The state bank will require new staffing, oversight and systems that already exist in the private sector and will need to be built from scratch.

It seems that a public bank will only cost taxpayers more money without any discernible benefit.

SB 5188 has already passed the Senate and is currently scheduled for review of the rules in the house.

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