Hawaii has joined the roster of 17 states that have introduced bills proposing state-owned banks, as one means of addressing the crisis in the housing sector and the challenges of financing business growth.
Advocates for this approach point to the success of North Dakota’s bank, established in 1919, as a potential model for adaptations elsewhere, and they cite the credit drought of the 2008 financial crisis as a reason states should play a role. Also, the languishing problem of the housing market, with many homeowners facing foreclosure, is a persistent weight on the recovery nationwide.
However, each state has its own set of conditions, not all of them requiring solutions matching North Dakota’s. Hawaii, in particular, faced comparatively few problems with its banking sector a few years ago, and the notion that its leaders should now step into the breach should give taxpayers pause.
Three measures are likely to be weighed by the Senate by the end of session, though only one so far has had a hearing. House Bill 1840, which proposes a task force giving the state more time to consider its options, provides a reasonable vehicle for further study; it’s on Friday’s 10 a.m. decisionmaking agenda for the Senate Commerce and Consumer Protection Committee, room 229.
The idea of a task force is often scorned by Capitol watchers as a delay tactic, but in this case it makes sense if, as one state agency has advised, a group of experts takes a wide view of all its options.
That office, the Department of Commerce and Consumer Affairs, submitted testimony Tuesday, presented by Iris Ikeda Catalani, its commissioner of financial institutions. Catalani observed that a state bank (also described as a "partnership bank" because it could work in tandem with commercial institutions) is only one of the options available for helping homeowners, adding that the task force should take a broader look.
For example, Catalani said, the department is studying Boston Community Capital, a nonprofit community development financial institution funded through accredited investors that has launched the SUN (Stabilizing Urban Neighborhoods) Initiative, giving qualified homeowners access to refinancing. She also cited Small Business Administration loans and financing opportunities and the resurrection of the Hawaii Capital Loan Program.
Massachusetts is one state that already has studied the idea and concluded it would require too much startup capital and would expose taxpayers to unacceptable risk, given that a state-owned bank would not be backed by the FDIC.
Of the other measures, HB 2103 directs DCCA’s Division of Financial Institutions to review laws "for the purpose of developing proposed legislation to establish a bank of the State of Hawaii." Catalani testified that more expertise is needed to inform such preparatory moves by her department.
Further, a task force also could consider various sources for capitalizing a financial institution, other than taxpayer funds. HB 1033, the third bill, proposes a "clean economy bank" primarily to increase access to capital projects oriented around clean-energy goals, and one that could draw on multiple funding sources.
There could be various ways to capitalize and structure the bank to reap its rewards — a potential higher rate of return for the state’s tax-funded deposits, and the advantage of keeping the capital in Hawaii for homeowner financing and development — while lessening the public risk.
But state lawmakers should take a deep breath and bring in informed advisers to ensure that any further steps move the state forward but not over a cliff.