State Banks - worth reconsidering?

I have sent the attached correspondence to the Australian Capital Territory Chief Minister, Katy Gallagher.

Dear Chief Minister

...

I am writing to draw your attention to a development in the United States.  The proposal may be worth considering as local economic conditions change over the next twelve months.

Earlier this month, 20 towns in Vermont considered a non-binding resolution to direct state legislators to create a state bank for Vermont.  Bills are presently before both houses of the state legislature which would effectively convert the Vermont Economic Development Authority into a state bank and require government to transfer 10% of cash reserves  to the Authority for initial funding (http://www.leg.state.vt.us/docs/2014/bills/Intro/S-204.pdf ).  If passed, Vermont would join North Dakota in establishing a state bank – designed to overcome a lack of local capital, local collateral and national interest in supporting local economic needs.  Al Jazeera America has now reported that 17 of the towns have overwhelmingly supported the proposal and that similar proposals are under consideration in 18 other American states or local areas: http://america.aljazeera.com/opinions/2014/3/vermont-state-publicbankvotefinance.html.

In similar or modified form, this proposal might be worth a second look for three reasons.  ACT government investment capital does not directly benefit the local community when put to work outside the local community.  ACT government investment capital will be increasingly exposed to risk as economic conditions in China deteriorate when it is employed outside the Territory, particularly in the resource sector.  Finally, the availability of a source of local competitive funding may provide additional stimulus to local development, particularly if mainstream banks ration credit. 

The estimated local economic advantages of establishing a state bank in Vermont cited in the Al Jazeera report are interesting.  While underlying economic conditions are significantly different, the ACT’s population (~380,000 residents) is 60% the size of Vermont (~630,000 residents) – a ratio that closes further when local NSW areas are taken into account.

I understand that the proposal has been supported by Washington County Senator Anthony Pollina, former Senior Policy Advisor to US Representative Bernie Sanders.

Peter Quinton

Palerang

March 2014