
When banks abandoned American Samoa, the islands found a solution: public banks - a_w
https://www.washingtonpost.com/news/wonk/wp/2018/05/09/when-banks-abandoned-american-samoa-the-islands-found-a-century-old-solution-that-could-be-the-future-of-finance/?noredirect=on
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patio11
We want a lot of things from retail banking:

We want it to be ubiquitous.

We want it to be close to free for retail customers.

We want it to not lose money on underperforming loans.

We want it to extend the social benefits of credit in the community, even if
the community is very poor.

We want it to be very closely regulated, so that people never lose their
money.

We want opening a bank to cost less than the net present value of all future
banking revenue in American Samoa.

It’s really rough satisfying all these wants at the same time.

~~~
narrator
The Chinese banking system does this. With regards to not losing money on
underperforming loans, the government just prints up money and bails out the
banks for all their mistakes. To keep moral hazard from getting out of hand,
financial fraud or even rule breaking is punished severely with the worst
frauds leading to executions and the banks are micromanaged to the point of
being partially privatized central planning.

~~~
ryankupyn
It's worth noting that printing money and giving it to the banks is
effectively the same as taxing cash - it causes inflation and reduces the
value of Yuan-denominated assets (though there are ways to manage this).

By doing this, the Chinese government is subsidizing entities that borrow from
the bank (which are often SOEs) without directly taxing its citizens.

~~~
nashashmi
Also worth noting that China prints money to keep the Yuan low and then
charges high interest rates to keep the cash from the markets and keep
salaries low.

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donarb
The state of North Dakota has its own bank, the only state that has one. It
provides services to citizens of the state such as home, farm and student
loans. It also is the bank of the state government, all state tax revenues are
deposited there. It was formed in 1919 as a way to allow farmers to get low
cost loans.

[https://en.wikipedia.org/wiki/Bank_of_North_Dakota](https://en.wikipedia.org/wiki/Bank_of_North_Dakota)

~~~
Slansitartop
This new American Samoan bank is explicitly modeled after the Bank of North
Dakota, and the OP goes quite a bit into its benefits.

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aaronbrethorst
Senator Kirsten Gillibrand introduced a postal banking bill last month that
would offer similar services to everyone in the United States. It is unlikely
that it will even make it to the floor for a vote given the current makeup of
Congress, but that could change with this year's midterm elections.

[https://slate.com/business/2018/04/kirsten-gillibrands-
ambit...](https://slate.com/business/2018/04/kirsten-gillibrands-ambitious-
postal-banking-bill.html)

~~~
pseingatl
Postal banking could help revive the postal service. Many countries already
provide these services through the postal system. Or even, believe it or not,
7-11.

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disordinary
I wonder if there's any thought within American Samoa of leaving US
administration and re-unifying with Samoa itself. Samoa has several banks, ANZ
being the largest. It would make sense and form a country of > 250k rather
than having one country of under 200k and another of under 100k.

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madads
Germany has 1,500 local not-for-profit community banks.

>>
[https://www.youtube.com/watch?v=EC0G7pY4wRE](https://www.youtube.com/watch?v=EC0G7pY4wRE)
>> [https://www.theguardian.com/sustainable-business/local-
banks...](https://www.theguardian.com/sustainable-business/local-banks-boost-
communities-business)

------
duxup
Nice to see them mention the bank of North Dakota. They had similar issues
with local banking needs not being met by anyone else so they started their
own bank to float local banks that could and were willing to help locals and
fund new local banks as well.

It also provides good rates on student loans as well.

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tehabe
Public banks are a good idea. It is part of the success of SME in Germany,
because we local and public banks to support them. The third pillar are co-op
banks. Which have a similar role.

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vl
With 60K population 6 hours by plane remote it's a miracle they had any bank
branches at all for this long.

Cost of having remote branch for any business in these conditions is high, so
profits should match it. It makes sense that they need local, more efficient,
solutions for the problem.

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pseingatl
There are no credit unions in American Samoa? These are fairly easy to
establish and are federally insured.

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Lionsion
> To understand why banks are scaling back and why it causes American Samoa
> such pain, imagine a basic small-town bank. It takes in paychecks and other
> deposits from locals and uses them as reserves when lending to their
> neighbors, who then invest in property and businesses.

> That model breaks down when banks span states or countries. The big banks
> with tiny branches in American Samoa are happy to take deposits from locals,
> but when it comes to lending that money back out, it makes cold, actuarial
> sense to focus on bigger, safer clients elsewhere.

This is another pretty good general argument against bank consolidation. In
addition to increasing economic fragility during crises, large banks also
neglect real communities that need their services during the good times.

~~~
jessriedel
Suppose there was a bank local to American Samoa and another international
bank with a branch in American Samoa, and the latter could offer higher
interest rates because it saw fewer average defaults when lending money. Are
you saying we should prohibit American Samoans from putting their money in the
international bank and getting higher returns, effectively forcing locals to
lend to other locals?

~~~
JamesLeonis
It's much simpler: Private Banking is offered for a profit, not because it is
in demand. If an international bank can make more black ink stateside rather
than Samoa, even if the risk/reward ratio isn't that different, the larger
bank chooses the more profitable market to distribute it's loans. This puts
Samoa in an awkward spot where they have a dearth of services, despite demand,
simply because _every_ bank made this analysis. It's classic Tragedy Of The
Commons.

A public bank, in contrast, does not have to put this absolute profit first,
giving them the flexibility to enter markets where they might not be _as_
successful, but they don't have nearly the competition for their services.
Additionally, since this is operated by the state, they can benefit from
business loans and interest as another form of revenue, giving them room to
cut taxes or improve services.

EDIT: As consolidation creates both larger businesses and larger reserves of
capital, this causes the bank to make more conservative loans. They must play
more defensively. As these banks retreat from "riskier" markets, it leaves
genuine demand behind. Look at the article's description of "predatory
lending" near the top of the article.

Because there is this pent-up demand, a local bank could open a branch that
captures some of that demand, and incentivizes locals with higher returns than
the international bank because they can charge a higher interest rate. But the
IntBank wouldn't still enter this market because the size is still too tiny to
warrant their attention and/or the interest rates locally don't move the
needle in their global reserves. It's literally too small to be worth the
effort.

~~~
zeveb
> It's classic Tragedy Of The Commons.

It's not a tragedy of the commons unless something artificially prevents banks
from charging a profitable rate for loans. If no other bank is doing business
there, and if any bank which _does_ do business is allowed to make a profit,
then certainly one will. Indeed, that's what the 'loan sharks' are doing:
providing desired services at a market-clearing rate.

It seems to me that a public bank will end up having to be subsidised from the
general fund to cover its losses, which in the case of American Samoa probably
isn't very large.

~~~
exelius
I think the risk for a business is that when the rates get too high, shadow
banking just takes over. Which it will, because the rates will be really high.

It’s a whole lot of work to serve 55,000 people with a GDP of $13,000 per
capita. There just isn’t enough economic activity to make this work from an
international bank.

