In the Great Hall of the New York City Chamber of Commerce there occurred recently a most ironic legislative hearing on a bill to establish a state-owned bank.
Sponsored by the New York Assembly Committee on Banks, the two-day session in the portrait-ringed hall heard witnesses for and against the proposal to put the state in the banking business, principally in those areas where the private banks have refused to sell or refused to deal.
THE CONDITIONS which led to this sudden but powerfully supported state bank idea have been building for a number of years. They include:
–Redlining the banks of low-income urban communities which, unable to obtain home mortgages and small business loans, suffer further deterioration and blight.
–Higher interest rates paid by municipal and public authority bonds amidst a general erosion of this bond market generally.
–Absence of venture or risk capital for new industrial and commercial enter: prices which don’t happen to be of the sprawling conglomerate size favored by the banks
–Absence of financing for consumer cooperatives that could he the engines for neighborhood or community economic development.
–Strip mining of capital from rural areas and small towns into the big urban and international money centers.
VOICING a complaint made by many citizen groups and an increasing number of smaller banks, Arthur M. Richardson, president of an upstate New York bank, said:
“To the international giants like Citibank, Chase Manhattan and others, their upstate banks are like strip-mining operations. The raw material, money, is extracted from our local communities to be used anywhere in the world where they can get the best terms regardless of local consequences.”
The state bank bill is supported by a powerful group of Democrats in the state legislature, including the speaker, Stanley Steingut, and Assemblyman George Cincotta who heads the Banking Committee. Already it has the votes to pass the Assembly and Gov. Hugh Carey has indicated he will sign the legislation if it gets over the main hurdle in the State Senate.
What makes the bank’s sponsors so determined is that a huge pool of money is available to get the institution under way and functioning. Municipal and state deposits total almost $3.5 billion. Local assistance funds could produce an average daily deposit in ex-, cess of $11.5 million. State pension funds and other deposits now in state-chartered commercial and savings banks could further swell the financial power of the state bank.
THE ALBANY lawmakers at the hearing also were strongly impressed by the testimony of H. L. Thorndal, president of the Bank of North Dakota — the only state-owned bank in the United States. Established in 1919 to help a fast slumping agricultural economy, the bank saved many farmers from economic ruin. Under prudent management, it has become by far the largest bank in the state and returns a handsome annual profit to the state treasury.
The farmers, mostly Republicans, like the bank. Municipalities which use the bank as a lower interest, primary market for their bond issues like the bank. Even private banks like the state bank because it helps to keep more money circulating within the state in- stead of being siphoned off to Minneapolis or Chicago.
The New York Bank would perform similar functions but also act as a development bank, lending to home buyers, small businessmen, and consumer cooperatives now ignored by the private banks.
MANY NEW YORKERS are cynical about political interference, which was why Chairman Cincotta emphasized that the bank would be “under public policy control but independent of both the bureaucracy and politics.”
More than assurances are needed, however. Tough and enforced provisions against secrecy and conflicts of interest-and for accountability to its declared purposes need to he included. Consumer, labor and other representatives need to be appointed to the bank’s board.
Officials or legislators in other states, including Oregon, Washington, Massachusetts, California and Colorado, are considering establishing similar state banks. They argue that the taxpayers’ funds should rot be used to fatten the already record profits of the banks. These officials will be watching the next few weeks’ events in Albany with extraordinary interest.