N. Dakota Bank Uniquely Popular : Even Its Competitors See Merit in State-Run Institution

The Bank of North Dakota has only 4,000 checking and savings accounts, and it does not advertise or actively seek to increase that number. It does not make commercial loans or car loans. The only personal loans it writes are to students, the only real estate loans to farmers.

That may not seem to be a level of service that would inspire much affection or draw many customers. But 60-year-old farmer Charlie Folk drives 45 miles once a week to do his banking here, even though there are banks closer to his Fort Clark home. And many others, like Folk, come to the capital city from throughout the state to do business at one of the bank’s six teller windows in its one and only branch.

If North Dakotans have a special feeling for the Bank of North Dakota, they have good reason: As Bismarck insurance man Art Shock, 59, explains it, he is a customer “because the bank belongs to all the people of North Dakota.”

The Bank of North Dakota is the nation’s only state-owned bank.

Socialism at Work

The state also controls and operates the bank, and every penny that it earns goes into the state’s general fund.

“This bank is a totally socialistic institution. There is no other way to put it. And, it works beautifully,” said John W. (Wally) Fay, 61, the bank’s vice president for investment and trust.

Says Gov. George A. Sinner, 56, the only governor in the 50 states who is also chairman of the board of a bank, “North Dakota is fortunate to have this unique institution. A bank like this has many advantages, so long as it is properly and carefully handled.”

The Bank of North Dakota is the largest in the northern states between Minneapolis and Seattle, with total assets of $835.2 million.

In its 65-year history it has been profitable in all but four years--1922, 1923, 1926 and 1931--earning a total of $174.3 million. Last year’s profits were $9.3 million, down from the record $11.2 million earned in 1983.

The bank was established in 1919 as an outgrowth of a populist movement that culminated with the Nonpartisan League gaining control of the North Dakota state government.

“Farmers in the state were unable to get long-term financing at reasonable rates about the time of World War I. They thought they were being ripped off by Minneapolis banks,” explains Ruben Sailer, 55, senior vice president for administrative and retail banking. “They succeeded in getting the legislators to enact a law creating the state-owned bank to encourage and promote agriculture, commerce and industry in North Dakota.”

That explains Charlie Folk’s devotion to the bank:

“My father needed a seed loan in the early 1920s,” the farmer recalls. “The only bank that would give my father the loan was the Bank of North Dakota. Our family has been a loyal customer of this bank ever since. I could do my banking at a bank eight miles from my home, but I prefer to keep my account here.”

The tradition continues: There have been far fewer farm foreclosures in North Dakota up to now than in neighboring farming states. Although 21% of the bank’s farm loans are in default, it has foreclosed on only 30 to 40 farmers.

“Because of the nature of the North Dakota grain farmer, he doesn’t take the risks (that) row crop farmers do. He’s a little more conservative than most,” says Bob Caudel, 56, senior vice president in charge of the loan department. “Our bank is probably more lenient than most banks in pressing foreclosures. Those that we have (foreclosed on) were beyond hope and in some cases had abandoned the property.”

The bank helps out in other ways. Because of the sparsely populated rural nature of the state, other North Dakota banks tend to be too small to keep up with the needs of borrowers. So banks, savings and loan associations and credit unions throughout the state come to the Bank of North Dakota for participation in loans.

Low Default Rate

Since its founding, the bank also has been underwriting municipal bonds for nearly all of the 900 political units in the state--bonds for water, sewer, paving, curbs, gutters, schoolhouses, fire halls and city buildings.

It also granted the first federally insured student loan in the United States in August, 1967, and has always been one of the leading banks in the nation in the number of student loans issued. During the past 17 1/2 years, the bank has issued 165,040 student loans, valued at $217.9 million, and boasts one of the lowest default rates in the country.

The bank also is North Dakota’s “Little Fed”, serving as the correspondent bank for more than 100 banks scattered across the state and clearing 100,000 to 200,000 checks a day.

In addition, according to North Dakota law, all state funds are deposited in the Bank of North Dakota.

Herbert L. Thorndal, 56, president of the Bank of North Dakota since 1969, says: “Bank of North Dakota is not a panacea for all of the state’s economic and social problems. However, it has been of great help alleviating many of these problems and has provided leadership and financial input.”

Example of Cooperation

The bank’s operations are supervised by its board of directors, the three-member State Industrial Commission, which is made up of the governor, as chairman, and the attorney general and the agriculture commissioner.

The governor, in turn, appoints a seven-member advisory board for the commission from various parts of the state. The current board is an example of the close cooperation between the state-owned bank and the other banks in the state: Three members are presidents of independent banks and one is a retired banker. Its other members are a manufacturer, a farmer and a dealer in farm implements.

Thorndal, who owned a small bank in Columbus, N.D., population 325, for 12 years before becoming the Bank of North Dakota’s president, admits that some bankers have philosophical reservations about a state-owned bank.

“But there is very little resentment on the part of North Dakota bankers regarding its existence,” he says. “From its start, the Bank of North Dakota did not propose to enter into competition with existing banks, but to cooperate with them and assist in developing and coordinating all parts of the financial services of the state, so as best to meet the needs of the people.”

Not Leading a Charge

Nevertheless, there were attempts by banks and political groups to get rid of the bank in its formative years. But it has persisted, in the same four-story building that it has occupied ever since its beginning.

“It boils down to the fact (that) independent banks in North Dakota are getting the most for their dollar with services offered by the state-owned bank, services that are done more efficiently at a lower cost,” said Ken Reno, 42, president of the 70-year-old United Bank of Bismarck. “We would be fools not to take advantage of that.

“There never has been a bill introduced in the legislature to do away with the bank since the 1920s. I’m sure not going to lead a charge to abolish the Bank of North Dakota, and I don’t know any other banker in the state that would.”

“The bank is an historical aberration,” says Thorndal. “I don’t think any other state will ever adopt this system. Bankers would not let it happen. But the fact is, this bank has proved to be extremely successful in North Dakota.”