New Jersey would become the second state with a publicly run bank — after North Dakota and its century-old institution — under the aims of an executive order Democratic Gov. Phil Murphy signed on Wednesday.
Murphy, a wealthy former executive at Goldman Sachs who’s in his first term as governor, campaigned on creating a state-run bank that uses some state deposits for projects considered worthwhile, like low-income housing and student loans.
The effort has stalled since Murphy took office nearly two years ago, with some in the state scratching their heads about the need for such a bank, but he said Wednesday “the time is right right now” to consider the project.
On Wednesday alongside organized labor representatives and members of a liberal-leaning think tank called New Jersey Citizen Action, Murphy signed an executive order creating a 14 member board charged with setting the bank up.
Murphy declined to answer questions about the project but sketched some details.
The idea is that state deposits currently sitting in large international banking institutions would instead go into the public bank, which could then provide what Murphy described as “below market rate capital” to “creditworthy and socially beneficial projects,” like infrastructure and small business lending, along with affordable housing and higher education loans. Murphy said any state deposits already in community banks could stay there.
“The concept is a bank owned by us to keep those dollars in New Jersey to benefit our economy,” Murphy said. “Let’s cut the leakage out, which is enormous.”
The Bank of North Dakota goes back to 1919 when it grew out of farmers’ political anger over outside control of credit and grain markets.
The bank functions as an economic development agency as well as a bank for other bankers.
That’s why, according to the think tank that hosted the governor Wednesday, New Jersey’s public bank would have to be different.
“There’s no way you can just take that model and just plop it down in New Jersey and that’s why we say it has to be a homegrown effort,” said Beverly Brown Ruggia, New Jersey Citizen Action’s public bank coordinator.
Specifically, the think tank argues that while New Jersey already has an Economic Development Agency and a program to fund student loans the funds don’t adequately cover the demand, particularly in poorer communities.
The New Jersey Bankers Association has opposed the public bank.
In particular, the group is worried the bank would be subject to cronyism and undue political influence.
Mike Affuso, the executive vice president of the association, says the group is trying to keep an open mind about the proposal but didn’t see the need for a bank, He said the state could move deposits currently in foreign banks into financial institutions operating in the state. The state keeps a list of what he described as “gold standard” banks where it could park money.
But political pressure was at the top of a list of concerns.
“The first ingredient is to ensure the bank is not subject to political pressures and is not a political animal, and in New Jersey that’ll be a difficult,” he said.
The executive order requires the board to meet within 30 days and to file a report within a year.