by Matt Stannard
March 14, 2018

Elizabeth Warren is in a bloody fight with the handful of Democrats who support new GOP legislation to roll back Dodd-Frank requirements on banks. The new legislation loosens regulations for smaller “community” banks, but also for the biggest, too-big-to-fail, often criminal banks at the top of finance capital’s food chain. One of the Democrats joining the GOP in that rollback effort is North Dakota’s Heidi Heitkamp, who said of Warren on this matter, “She doesn’t live where I live.”

But Heitkamp lives in the state with the country’s only public, state-owned bank, the Bank of North Dakota. And although she told The Atlantic‘s Russell Berman a sob story about “Democrats [watching] as smaller banks and lenders in their states have been eaten up by larger institutions, due in part to the added burden of regulations created by Dodd-Frank,” there are a couple of half-truths at play here, and Heitkamp should know better.

First, Dodd-Frank has been little more than an exacerbating factor on what was already a steep decline in community bank viability. As J.V. Rizzi wrote in American Banker a few years ago:

There are many things to dislike about the Dodd-Frank Act. Causing the demise of community banks, however, is not one of them . . .  the number of community banks with assets under $100 million dropped from 13,000 in 1995 to 2,625 in 2010–before Dodd-Frank was enacted. The number of small community banks had dropped under 1,900 by 2014.

Second, and even more to the point of why Heitkamp’s position is so weird: the Bank of North Dakota has kept community banks alive in that state through financial support for community bank loans, and regulatory compliance support. The results have been astounding if one compares North Dakota’s community banking scene to the rest of the country. I once explained why in a blog post I wrote for the Public Banking Institute:

Public banks offer unique benefits to community banks, including collateralization of deposits, protection from poaching of customers by big banks, the creation of more successful deals, and . . . regulatory compliance. The Bank of North Dakota, the nation’s only public bank, directly supports community banks and enables them to meet regulatory requirements such as asset to loan ratios and deposit to loan ratios. . . . [I]t keeps community banks solvent in other ways, lessening the impact of regulatory compliance on banks’ bottom lines.
We know from FDIC data in 2009 that North Dakota had almost 16 banks per 100,000 people, the most in the country. A more important figure, however, is community banks’ loan averages per capita, which was $12,000 in North Dakota, compared to only $3,000 nationally. . . . During the last decade, banks in North Dakota with less than $1 billion in assets have averaged a stunning 434 percent more small business lending than the national average.

Stacy Mitchell reached a similar conclusion:

With 89 small and mid-sized community banks and 38 credit unions, North Dakota has six times as many locally owned financial institutions per person as the rest of the nation. And these local banks and credit unions control a resounding 83 percent of deposits in the state — more than twice the 30 percent market share that small and mid-sized financial institutions have nationally.

And so did Ellen Brown, who provides some background on how BND was mandated to help with compliance:

In order to help rural lenders with regulatory compliance, in 2011 the BND was directed by the state legislature to get into the rural home mortgage origination business. Rural banks that saw only three to five mortgages a year could not shoulder the regulatory burden, leading to business lost to out-of-state banks. After a successful pilot program, SB 2064, establishing the Mortgage Origination Program, was signed by North Dakota’s governor on April 3, 2013. It states that the BND may establish a residential mortgage loan program under which the Bank may originate residential mortgages if private sector mortgage loan services are not reasonably available. Under this program a local financial institution or credit union may assist the Bank in taking a loan application, gathering required documents, ordering required legal documents, and maintaining contact with the borrower.

So Heitkamp’s invocation of North Dakota is curious. I can’t say I’m surprised though: BND has saved conservative North Dakota’s financial ass countless times, but state officials and electeds hate acknowledging this–in fact, they almost never do in mainstream contexts.

Warren’s criticism of the new Senate bill is sound. The bill ultimately exempts all but only the top 12 banks in the country from regulations and stress tests. The worst thing Warren is guilty of in this instance is believing (or acting as if she believes) that for-profit banking can be saved at all. We can have that debate another time (I personally believe capitalism makes the consolidation or death of small banks inevitable without massive state intervention). But Heidi Heitkamp’s omission of her own state’s success in propping up an otherwise anemic community bank industry is, to use current parlance, sad.

Matt Stannard writes on cooperative economics, law, and sustainable farming. He was policy director at Commonomics USA and a board member of the Public Banking Institute.