First in the Midwest: After nearly 100 years, North Dakota still values its state-owned bank — the only one of its kind in the nation

Not far from the North Dakota state Capitol in Bismarck stands a sleek, glass-covered building that, at first glance, belies its historic ties to the state’s progressive-era roots.
Despite its modern façade, however, the Bank of North Dakota — the nation’s only state-owned and state-operated bank — stands in part as a testament to the agrarian revolt that engulfed the young state and eventually ushered in a sweeping series of government reforms almost 100 years ago.

But the Bank of North Dakota is more than just a relic from the distant past. It is also a remarkably successful financial institution that functions primarily as a “banker’s bank” by working closely with private institutions to expand their lending capacity and promote the state’s economic development, all while operating in the black for 40 consecutive years and counting.
Often criticized as an unwarranted intervention in free enterprise, the idea of a state-owned bank was, in fact, initially championed in North Dakota by the grassroots Nonpartisan League, founded in 1915 by a former Socialist Party organizer.
As part of its effort to curb the power of out-of-state interests that effectively controlled the state’s agriculture-based economy (more than 90 percent of North Dakotans were engaged in farming at the time), the Nonpartisan League advocated an ambitious reform program based on tighter state control of mills, grain elevators and other farm-related industries.
A publicly owned bank was part of the plan to restore local control of the economy, and sweeping electoral victories by the Nonpartisan League paved the way for historic legislative actions in 1919.
First, an Industrial Commission — consisting of the governor, attorney general and commissioner of agriculture — was established and given the power to oversee a number of industrial and commercial activities. Lawmakers then approved a separate measure establishing the Bank of North Dakota under the management of this three-member commission.
Broadly charged with promoting agriculture, commerce and industry, the bank was authorized in its original charter to assist the state’s private banking sector without harming existing financial institutions.
To alleviate the concerns of local bankers who feared that a central state bank might drive them out of business, the Industrial Commission agreed early on to limit the state-owned bank’s commercial lending to farm real estate loans, to prohibit it from opening branches, and to keep it from engaging in most forms of retail banking.
Ninety years later, the Bank of North Dakota remains true to its mission of promoting the state’s economic development, and it continues to work closely with local community banks.
Its unique deposit base is the state itself, since all state funds and funds of state institutions (excluding pension funds and trusts managed by the state) are required by law to be deposited with the Bank of North Dakota.
Most of its loan portfolio consists of participation loans: The state-owned bank finances a portion of the loans made by privately owned local banks, thus expanding their lending capacity while distributing the risk associated with the shared loans.
The Bank of North Dakota is not a member of the Federal Deposit Insurance Corporation; its deposits are guaranteed instead by the full faith and credit of the state of North Dakota. Part of the bank’s earnings are used to expand its capital base, while some profits go to the state general fund. Over the past dozen years, the bank has poured more than $300 million into state coffers.
In 1967, the Bank of North Dakota issued the nation’s first federally insured student loan; today, guaranteed student loans account for about one-third of the bank’s total lending.
“A lot of people went to school on loans received from the bank,” notes state Senate Majority Leader Rich Wardner.
If it didn’t already exist, Wardner says, a publicly owned bank might be a tough sell in a state as conservative as North Dakota, which also boasts the nation’s only state-owned mill and elevator. But he adds that the bank “has found its niche and is working well for the state and with the private sector.”


Article written by Mike McCabe, director of CSG Midwest. First in the Midwest highlights noteworthy “firsts” in public policy that occurred in this region.
Stateline Midwest ~ December 20131.76 MB