How Can State Banks Cut Off The Snake’s Head?


federal-reserveHow can a nation lawfully put its central bank out of business because of monetary policies that destroy the people’s freedom and the nation’s wealth?


by Marilyn M. Barnewall


This article is about how to lawfully cut off the head of a snake… or, perhaps octopus might be a better word. This is an octopus whose arms must be removed one at a time because if you attack all of them at once, you will lose the battle. It is too strong. It is one reason this series of articles has insisted readers view the meaning of things in the financial world one at a time… money, capitalism, democracy, financial products like derivatives – and the Federal Reserve System.

A large (but only partial) solution to destructive monetary policies in America is called State Banks. You may have heard of the concept. I was first in the world of banking or journalism to write about it over four years ago and it was a cause quickly taken up by a group supported by Soros money. They talk about it a lot. The plans from this group that I have seen would ensure the failure of the State Bank concept… and that is perhaps what George Soros has in mind. They want to bring the fractional-reserve banking concept to State Banks. Soros realizes State Banks are a major part of the solution to the Western world’s central bank problems and bringing fractional-reserve banking to the state level may be his way of making sure it does not succeed.


There is a great deal of misunderstanding about what a State Bank is, so let’s start the explanation of what it is by talking first about what it is not.

A State Bank is owned by the public and is not a private corporation. It is, thus, a public bank owned by taxpayers of the State.

In a state with a State Bank, people who  do business with the banks – where you and I deposit money, write checks and get car loans – do business with banks owned by private investors, just as they are now. They are not owned by the State Bank. They are NOT part of the State Bank. A system of state-owned banks on Main Street would be a socialist or communist system and State Banks represent quite the opposite.

State Banks are NOT state-chartered banks. All states charter banks… you will see the Maryland State Bank or the Indiana State Bank or the State Bank of Colorado or Virginia or Wisconsin or Oregon. These are banks that do business with the public but who get their charter to do business from the State Banking Commissioner rather than from the federal government (Office of the Comptroller of the Currency – which functions in concert with the Federal Reserve and the Federal Deposit Insurance Corporation, etc.). Federally-chartered banks are called “National Bank” — e.g., Chase Manhattan National Bank.  Regardless, state-chartered banks live under the same rules and regulations as nationally-chartered banks (as do savings banks and credit unions).

Properly structured State Banks are not operated by politicians (and you will have to babysit your State Bank legislation to make sure that doesn’t happen). Rather, with well-written legislation, the state requires the bank to be run by professional bankers under a well-controlled environment of positive regulation. Since State Bank employees are public servants, and are not directly involved in making loans to the public – that is done by the privately-owned independent banks serving the public – no bonuses, commissions or fees for loan generation are paid to State Bank employees – or, to executive management of the bank.

State-owned banks, properly structured, do not compete with community banks. Rather, they support them. A State Bank uses state funds to provide credit for local growth-based projects. Currently, taxes and fees from state taxpayers leave the state and are leveraged for numerous things including international investments. This creates no jobs for state residents.

Bank of North Dakota is the only State Bank in America.  A properly structured State Bank does not compete for consumer or commercial deposits (or loans). The independently-owned banks chartered by the state handle those things – as they do now. In North Dakota, less than 2 percent of BND (Bank of North Dakota) deposits come from consumers. Community banks have available to them municipal government deposits and can use the funds to create jobs locally because the BND provides letters of credit guaranteeing such loans. As a properly-stated state bank Act reads: “All state revenues must be deposited in the State Bank.”


Primarily, a State Bank is an administrator. It grants bank charters and acts as a correspondent bank for the banking community.

At the current time, Money Center banks (the too big to fail/jail banks) act as correspondent banks for the independently owned banks on Main Street. Why do independent banks need a “correspondent” bank and why is this important?

A correspondent bank receives loan requests from smaller banks – banks too small to make a large loan when a client or prospective client requests one. This “loan sharing” concept is good… until the large banks become endangered by marketplace forces and their own greed or stupidity.

Under the current correspondent banking system, if one bank at the top fails, it has a spin-off effect on all of those banks for which it has acted as a correspondent bank.  It has participated in  loans with independent banks throughout the country.  Unless the FDIC can find another, bigger bank to buy a failing bank, such a bank must demand immediate repayment of all of its loans, including the loans made while acting as the joint lender/correspondent bank. That immediately puts the smaller banks who have joint loans with the big failing bank in danger of loss.

Should a big (Money Center) bank fail, it must demand immediate repayment of its loans… including those loans made jointly with smaller banks while acting in a correspondent – or, a joint lending – capacity. That’s why the smaller banks are at risk of failure too… it puts the entire system at risk of failure. That is why such banks are called “too big to fail” – or, “too big to jail.” Some of the “smaller banks’ to which I refer are, in reality, quite large; but, when considering a multi-billion dollar loan to a multinational corporation, the “smaller bank” needs one or more correspondent bank participants to minimize loan loss risk.  That’s the theory, anyway.

Most people think if they have a bank car loan with a three-year term, nothing can change that three-year term if they stay current with their loan payments. That is generally true – but when a bank fails, “generally” no longer applies. When the FDIC enters a bank that is failing, its primary obligation is to either find another bank to purchase the failing bank (impossible with the largest banks in the nation), or to generate sufficient funds to both cover the bank’s bad investments and to pay depositors who might otherwise take a loss. How do they do that? They tell you that your three-year car loan is due and payable in full NOW. Thus, it is very important for you to know how stable any bank is when you borrow money from it.  If it fails, your loan will very likely be “called” – full payment may be demanded regardless of your stated loan term.

Having a state-owned bank become the correspondent bank for the independents doing business in your state is, thus, an advantage. Do you see how? It removes the domino effect. If the “too big to fail” guys fail, the smaller banks are no longer in danger. The “too big to fail” banks are no longer a threat to the entire banking system because of all the correspondent loans they have on the books. Those “correspondent” loans are now on the books at the State Bank. These aren’t bad loans and don’t represent loan losses. The only reason they would be “called” is because the too big to fail bank failed and needed to call all of its loans, including the correspondent bank loans. Confusing, I know.

In a state that has its own State Bank, nationally-chartered banks (banks chartered by the Comptroller of the Currency – the federal government) are still invited to do business. The primary difference for them in the new environment is that the state bank is now the correspondent bank.


The Bank of North Dakota (BND) – America’s only state-owned bank – was founded in 1919. We have observed its performance for 95 years.

Like all states and financial institutions in the United States, North Dakota banks must comply with federal bank regulations. Having a State Bank doesn’t change that.  The BND has an account with the Federal Reserve but it also clears its own checks. If the federal banking system failed tomorrow, BND would be able to clear checks for North Dakota’s independent banks within the week. No other state can say that.

BND deposits are not insured by the FDIC but are guaranteed by North Dakota’s General Fund and the taxpayers. BND has its own student loan program (it guarantees student loans) and guarantees business development loans and state and municipal bonds.  Independent bank deposits are insured by the FDIC in North Dakota. All states must function under federal laws.

Perhaps the best time to judge a concept like a state-owned Bank is during economic downturns. How did Bank of North Dakota perform from 2008-2012?

During the summer of 2011, the U.S. unemployment rate was at its worst. Government statistics say the unemployment rate was 9.1 percent (most of us know it was much higher). In North Dakota, unemployment was 3.1 percent. Most states had budgetary short-falls. North Dakota had its largest financial surplus in history in 2010 and the state almost always tops the list of state economies.

In 2011, North Dakotans saw almost $500 million of their money returned to them in the form of tax cuts. When combined, the 2009 and 2011 tax reductions amounted to about 30 percent. The legislature also funded $342 million in property tax relief. The owner of a $150,000 home enjoyed a tax reduction of just over $506. Additionally, over a ten year period BND wrote checks totaling $325 million to the State of North Dakota Treasury (which made it possible to reduce taxes).

Between 2002 and 2012, there were no bank failures and North Dakota had the lowest home foreclosure rate in the nation… the lowest credit card delinquency rate, too. During this time frame, the state enjoyed a population growth rate of 6 percent annually.

The BND is the reason that state’s economy tops the list nationally year after year. It is the reason North Dakota was the only State with a continuous budget surplus since before the financial crisis of 2008; and while the rest of America endured a Recession, the state of North Dakota enjoyed the largest budget surplus in its history.

Yes, I’m familiar with the Bakken Oil Fields and many people point to oil as the state’s source of economic strength. Montana, however, owns the largest portion of the Bakken Oil Fields, not North Dakota. In 2011, Montana faced a $62.5 million general fund budget deficit by June 30th. The state’s unemployment rate was 7.2 percent. Alaska produces twice as much oil as North Dakota but its unemployment rate is 7.2 percent. It also has budget problems. Texas and California also produce more oil than North Dakota. In fact, according to State Budget Solutions, state debt in 2012 exceeded $4 trillion – but not in North Dakota.

It is because of North Dakota’s State Bank, not the Bakken Oil Fields, that state excels economically! When was the last time the Governors of California, Alaska, or Montana offered to cut property taxes (or any taxes, for that matter)?

When I was a bank consultant (1979-1993) before disability, my daily fee was $2,000. I was paid for my opinion. In 2014 dollars, that amount would probably have increased to somewhere between $5,000 and $10,000 per day. I give you this opinion free of charge: I believe the establishment of a State Bank offers the most important alternative to state legislators to save their states from devastation when the federal system fails. It is a way to protect a state’s sovereignty without declaring it and a state bank makes it possible for a state to issue its own currency (should it become necessary). A state currency without a state monetary distribution system – a State Bank – is like an impotent bull: Unable to perform.

If a state declares sovereignty (as several have done or said is their right), it must be done both de jure (when used to define government, it means “the legal, legitimate government of a state and recognized as such by other states;” used corporately, it means “according to law”) and de facto – “in reality.”

A state may say it is sovereign, but sovereignty must also be accepted by others. For said declarations to hold legal weight and to be taken seriously nationally and internationally, the declaring state must, according to international law, have a definable territory, a defined population, a governing body, and it must be able to exercise and control its own monetary power. Any state can comply with the first three requirements. Logic dictates that no state can exercise monetary power when tied to a failed federal system of finance and Federal Reserve Notes that may – or may not – maintain value.  When the federal system fails or a State declares Sovereignty, the Federal Reserve isn’t going to be around to provide currency for your banking system… oh, wait a minute; you don’t have a State Bank so you don’t have a banking system.

One thing is absolutely certain. Without a State Bank, states have no alternatives should the federal system collapse. The state system will collapse with the federal system. With a State Bank, both state sovereignty and currency creation are possible. Without a State Bank, neither is possible. What state legislators need to think about is this: Without a currency distribution system independent of the federal system in place, states have no alternatives but financial chaos available to them – and that is what they will get should the federal system fail – unless they have a State Bank.


What does a State Bank do that turns a state’s economy around so quickly (researchers estimate within one year)? What does BND do that is not done in your state.

A State Bank keeps your state taxes and fees in your state rather than giving them to the State Treasurer who immediately places them in various banks (that do business with the Federal Reserve). In other words, you are feeding the snake rather than cutting off its head.

What currently happens to your state taxes and fees? They are placed in banks who must send 10% of all deposits to the FDIC for insurance and, because it’s deposited in a Federal Reserve Bank member, they provide the Federal Reserve with funds to make all of those low-cost loans to Wall Street and foreign nations. Are they turned into loans in your state? Oh, good heavens no! When a State Bank keeps your taxes in state, they are available for business loans where you live rather than where votes or international favor can be bought.

BND is run in a very fiscally conservative manner… it is not subject to outside interference by politicians with a special project they want to fund. Credit policies chartered by State Banks must be approved by a State Bank Advisory Board.  BND eliminates to the degree possible involvement with speculative loans or derivatives and other risky ventures. It’s why they are so profitable!

State funds and tax monies are kept safe by a well-structured State Bank. BND manages VA, FHA, student and other federally-guaranteed loans that would otherwise go to large banks with corporate headquarters in New York or Chicago or Charlotte, NC.

When local communities partner with a State Bank, it allows independent banks to fund local projects which sustain economic development within the community. The “too big to fail” banks have no interest in local communities. Studies show that from 30 to 50 percent of public project costs are composed of loan interest paid. Thus, the reduced cost of borrowing from a State Bank can help fund local infrastructure projects.

As of June 30, 2009, the Federal Reserve Bank of St. Louis said there were 6,898 commercial banks in the United States – but as of June 30, 1984, there were 14,369 commercial banks. In 1994, that number was pared down to 10,623. Now we have less than 6,898.

More than 70 percent of new jobs are created by independent businesses and independent banks serve independent business. And people wonder why there is no job creation?

Local banks are a key to ongoing economic stability and are often the sole source of independent business growth for communities.  Statistics indicate it is time for our legislators to look at lawful alternatives available to the state that can stimulate economic growth and taxpayer confidence. Historic results over a period of 95 years at the Bank of North Dakota prove the value of State Banks.

If it’s such a good idea, why isn’t every state implementing a State Bank?

In 2011, 13 states were in the legislative process of establishing State Banks.  Oregon, Washington, California, Hawaii, Montana, Illinois, Massachusetts, Maryland, Virginia, Florida, Colorado, and a couple of others.  Having worked to get State Bank legislation passed in Colorado, I can tell you that the Colorado Bankers Association strongly opposed it.  Why?  Because almost all of the membership revenue the CBA acquires each year comes from — you guessed it:  the giant federally-chartered banks.  The Independent Bankers Association opposed it, too.  Why?  Because a State Bank eliminates the need for an association representing independent banks… or that’s what the IBA thinks.  The Independent Bankers Association in North Dakota loves the State Bank concept and has found new and more meaningful ways of serving its membership — ways that benefit the state’s taxpayers.The American Bankers Association also opposes State Banks.  Why?  For the same reason State Banking Associations oppose it… most of the ABA’s membership funds come from too big to jail banks.

The only way you will get a State Bank is to get it on the ballot because your state legislature won’t approve one.  Most of their election time money comes from those big banks and investment companies that have merged with the too big to jail banks.

You’re on your own — but this is a major solution and with a little help from your friends, it can be achieved.

(c) 2014 Marilyn M. Barnewall 


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Marilyn MacGruder Barnewall began her career in 1956 as a journalist with the Wyoming Eagle in Cheyenne. During her 20 years (plus) as a banker and bank consultant, she wrote extensively for The American Banker, Bank Marketing Magazine, Trust Marketing Magazine, was U.S. Consulting Editor for Private Banker International (London/Dublin), and other major banking industry publications. She has given speeches to bankers worldwide. She has written seven non-fiction books about banking and taught private banking in Singapore; also at Colorado University for the American Bankers Association. She has authored seven banking books, one dog book, a biography, and two works of fiction (about banking, of course). She has served on numerous Boards in her community. Barnewall is the former editor of The National Peace Officer Magazine and as a journalist has written guest editorials for the Denver Post, Rocky Mountain News, and Newsweek, among others. On the Internet, she has written for News With Views, World Net Daily, Canada Free Press, Christian Business Daily, Business Reform, the Post & Email, and others. She has been quoted in Time, Forbes, Wall Street Journal, and other national and international publications. She can be found in Who's Who in America, Who's Who of American Women, Who's Who in Finance and Business, and Who's Who in the World.