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Critics don't take much stock in Bernero's state bank proposal

Democratic gubernatorial nominee Virg Bernero is proposing a state bank for Michigan small businesses.
WKAR Photo
Democratic gubernatorial nominee Virg Bernero is proposing a state bank for Michigan small businesses.

By Rebecca Kruth, WKAR News

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East Lansing, MI –
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Democratic gubernatorial nominee Virg Bernero is proposing a state-owned bank to help get Michigan's economy back on its feet. Bernero's plan would take $500 million of the state's money out of large national banks and reinvest it in a newly created "Main Street Bank."

But critics aren't convinced it would work and some say it could make things worse.

AUDIO: Virg Bernero wants to cut ties with Wall Street banks that refuse to lend in Michigan. He says the state should not invest its money in banks that have no interest in investing in the state. It's all part of his plan to create a "Main Street Bank" that would be owned and regulated by the state of Michigan.

Under Bernero's plan, the bank would provide low-interest loans to businesses, a service he says would help to jumpstart the state's economy.

"It addresses what I think is the number one problem facing small businesses in our economy, and perhaps the number one problem in our economy, which is the lack of access to capital," Bernero says.

Bernero's plan is based on the Bank of North Dakota, currently the nation's only state-owned bank. Established in 1919, the Bank of North Dakota was originally meant to provide financing for farmers. Today, the bank also provides low interest loans to students, homeowners, and small businesses.

Like the Bank of North Dakota, a Michigan-owned bank would operate on a system in which state deposits are reinvested in the bank. Bernero says that unlike other states plagued by the recession, the state of North Dakota is operating on a surplus budget.

"They've created a lot of economic development in the state of North Dakota, and in addition to the economic activity that they've spurred, they've also contributed about $300 million to the budget, to the surplus budget, of North Dakota," Bernero adds. "About $30 million a year for the last 10 years."

Critics say a state-owned bank would not come without complications.

Don Mann served as the deputy commissioner of banking under the Blanchard and Engler administrations. He's also a private bank consultant. He says that what works for North Dakota won't necessarily work for Michigan.

"It works for a small state, a rural agriculture state, not a diverse large state like Michigan with economic issues," Mann says.

Mann says political conflicts of interest could arise when regulating a state-owned bank.

"The commissioner is appointed by the governor, and the commissioner regulates the bank," he says. "There is something inherently wrong with the state-owned bank being regulated by the commissioner who is appointed by the governor."

Mann also says banks have plenty of money available to loan, but there are a lack of credit-worthy borrowers.

Charles Ballard disagrees. He's a professor of economics at Michigan State University. He says Bernero is right, there is a lack of credit available in the state, even for those who have good credit ratings. Ballard has heard wide-spread talk about Michigan businesses having difficulty securing credit. He says some of this is due to the national economy.

"But there's a sense that it's especially acute in Michigan, that it's difficult to get credit, even for credit-worthy projects," says Ballard. "So there is a need there. Whether the bank is the best way to address that, that's a very important policy question."

Ballard says that the bank wouldn't be a quick fix for the state's economy and would have to include serious safeguards to prevent corruption.

"Really, I think it's worthy of consideration," he says. "Like so many things in this area, it's got pluses and minuses, and the devil will be in the details."

It's estimated the state bank would cost between $150 million and $250 million to get started. Virg Bernero says it could be fully capitalized at $500 million.

WKAR asked to speak with Bernero's financial advisors. However, the campaign could not provide those contacts.


reWorking Michigan
For more on job creation and workforce evolution in Michigan, visit WKAR.org/reworkingmichigan

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