A development bank is a national or regional financial institution designed to provide medium- and long-term capital for productive investment, often accompanied by technical assistance, for the purpose of encouraging economic development in primarily poorer regions. They provide loans and grants to fund projects that support social and economic development, such as the building of new roads or providing clean water to communities.
While commercial banks seek to make profits on loans and other financial services, the goal of development banks is to issue grants and low-cost loans to improve the economic conditions of impoverished or developing areas. Unlike commercial banks, development banks do not seek to maximize profits for their shareholders.
Instead, they prioritize development goals, such as ending extreme poverty and reducing economic inequality. They often lend at low or no interest or provide grants to fund projects in infrastructure, energy, education, environmental sustainability, and other areas that promote development. Such would be the case for our state-based development bank.
Historically, the majority of development banks around the world have been focused on poorer countries. In recent times, the U.S. has not formed a development bank to address such issues right in our own backyard. (i.e., “The cobbler’s kids go without shoes”). The U.S. 117th Congress became aware of the problem, and introduced four different bills to create some form of a development bank for domestic objectives, but none were enacted.
We intend to remedy that on a state-by-state basis. One of the primary functions of each state development bank would be to address a wide spectrum of troubled assets in those states, as detailed in this document Troubled Asset Acquisition Program. Those assets range from all manner of consumer debt (mortgages, car loans, student loans, business loans, etc.), seized properties and blighted properties.
To carry on such banking activities requires the obtaining of a bank charter, pretty much a universal requirement to conduct banking anywhere in the world. A bank charter provides a license to accept depositor’s money, and to create money when they make loans and provide other banking services. Credit unions are a special type of chartered bank.
There are two primary ways to obtain a bank charter – form a new one or buy an existing one.
Under the U.S. dual banking system, forming a new bank entails applying to either a) the federal government or b) a state government to obtain a charter to form a new bank. Such a new bank is referred to as a “de novo” bank. Whether a state or federally chartered bank, setting up a de novo bank is often a complicated, multi-year process.
A de novo bank is a new business without a proven track record, thus faces the high risk associated with any brand-new business. That is why regulators are slow to approve them. That is further complicated by the fact that the money deposited with the bank is insured by the government (up to $250,000 per account), thus making the regulators twice cautious about establishing a new bank.
The primary alternative to forming a de novo bank is to purchase an existing bank, usually a much quicker and easier solution. Purchasing a bank is not all that dissimilar to purchasing any other ongoing business, where the business has already demonstrated its viability in the market place. Thus, regulators are much more willing to approve a bank purchase than approving a de novo application.
However, given that the purpose of a development bank is to address problems that normal commercial banks avoid, (i.e., a benefit to society rather than shareholders), regulators might be more willing to approve a de novo application, especially at the state level due to the benefit of such a bank would provide that state. And given the public interest, it is not out of the question that political influence can also be brought to bear to quickly approve such an application.
In addition, because our DB will be owned by a non-profit organization, there are numerous sources of new and ongoing capital that may be used to support the functions of such a DB, representing a completely different risk profile than a standard commercial bank might present.
The decision on whether to establish a de novo bank or purchase an existing one will vary state by state, the key being to determine the fastest, most expedient way to obtain a charter in order to commence providing the benefits to the state that such a DB can do. Ultimately, National Commonwealth Group (NCG), the owner of any and all DBs under the SCF ecosystem, will likely obtain a OCC federally chartered bank as that will allow NCG to simply open a branch in each new state (much, much faster than obtaining a new bank charter or buying a bank).
Finally, while the Public Benefit Bank will be the issuer of all state currencies, the DB in each state will be the exclusive “manager” of that state’s complementary currency, thereby providing the DB with the ability to distribute both dollars and the complementary currency in fulfillment of the entire Sustainable Communities Framework in that state. And where that currency is sold throughout the state, the DB will retain 50% of the revenue generated by those sales, which provides the DB with substantial dollars to use for the various SCF programs throughout the state. The other 50% will be allocated to the Retail Bank in each state.