A STATE OWNED BANK IS NOT THE ANSWER
Loren C. Allen
WVBankers General Counsel/Director of Government Relations
West Virginia Banker, Fall 2018
As our elected officials continue to grapple with the complex issues surrounding the development of a medical cannabis industry in West Virginia, one thing is very clear: a state-owned bank is not the answer.
A state-owned bank would present significant new risks for everyone involved. The banking industry is very closely regulated. A cadre of state and federal agencies with broad overlapping regulatory jurisdiction are continuously examining banks for strict compliance with thousands of state and federal rules and regulations. This extensive regulatory structure developed and evolved over decades to ensure that deposits are safe and that banks maintain sound operations. Banks and their customers also enjoy the safety and security of deposit insurance through the Federal Deposit Insurance Corporation (“FDIC”).
Creating a state-owned bank is like putting the coyote in charge of the chicken coup. One doesn’t have to look very hard for examples of fiscal malfeasance in state government. A state-owned bank would be, at best, self-regulated, and state funds would be totally uninsured. The consequences of a state government getting into the banking game with no particular expertise and no successful modern model to build around could be disastrous. A state-owned public bank lacking in experience and sophistication in loan origination would be more likely to make riskier loans with the people’s money. And lending should never be politicized. It is not difficult to imagine how a state-owned bank would become the lending arm of the party in power and cycle into a pattern of allocating credit to political allies and denying the same to those in opposition.
A state-owned bank would be incredibly expensive. Perennial budget challenges in West Virginia would significantly limit the state’s ability to fully capitalize a state-owned bank at inception or to fund ongoing operating costs.
West Virginia already has a healthy banking sector. According to recent data collected and compiled by the American Bankers Association, banks in West Virginia employ almost 9,000 people paying out average salary and benefits of approximately $56,000 per employee for a total of almost $500 million dollars. West Virginia’s banks are the financial foundation upon which small business in West Virginia is built with $2.6 billion across almost 17,000 outstanding small business loans. West Virginia banks serve 2.2 million customers, insuring $32.9 billion dollars in deposits in 637 branches across the state. An unregulated and uninsured state-owned bank, would wreak havoc on the banking market and particularly our most vital community institutions. A state-owned bank would draw deposits and loans away from community banks which would result in, further contraction in the community banking industry, lost jobs, slowed growth and devastation to the communities served by banks across the state.
A state-owned bank is not the answer. The risks are too great, and the cost is too high.