How to start a public bank with notes

Editor's Notes

• #3: We are going to use a custom Microsoft Excel workbook consisting of 3 spreadsheets to figure everything out. It is based on a published spreadsheet for a simple commercial bank from “Money Basics by Christopher D. Moore, 2003” (see appendix in source document: “How To Start a Public Bank.pdf”), but with the addition of funds from existing city/country/state/region assets, modified for a public bank, and modeled out 8 years.
• #4: Political entities over 100,000 people likely have enough available assets to start a Public Bank, but you have to learn to examine the Comprehensive Annual Financial Reports to be sure. These reports are typically hundreds of pages long, but we are only interested in a few figures. See CAFRMAN.COM.
• #6: Startup & Fixed Costs (Tab) A Public Bank has a simpler setup than a commercial bank. There is only one branch – headquarters – and there is no need for most of the staff to meet the public, since the sole, or nearly sole, depositor is the entity that owns the bank, in this case, the city of Oakland.
• #7: The Startup and Fixed Costs spreadsheet is split in this presentation but would appear as a single sheet in the workbook. The footnotes refer to the first section in the previous slide.
• #8: Note: Operating Ratios are those used by Christopher Moore in 2003. These may have changed since then or be different in your area. Interest rates have come down significantly from when this spreadsheet was created. It is up to you to find out the current minimums to meet, as well as other regulatory requirements.
• #9: Here we introduce Deposits for the first time, taken from the General Fund Revenues (GFR). $178m is deposited to start, but this will climb to 2/3 of the GFR, or $400m, by year 2. Interest rates, cost rates have been adjusted to meet current conditions (2016).
• #10: The bank starts paying dividends back to the pension fund in year 3, after 2 start up years when there is little profit. This is only 40% of net earnings to start, but will increase yearly as profits climb. Note the payment of dividends seemingly depresses Performance; these would be much higher if dividends were kept by the bank. Operating ratios are compliant and there is a moderate rate of loan losses due to default (based on figures from the Bank of North Dakota, the nation’s only Public Bank).
• #11: Dividend payouts increase significantly in the early years, then taper off by year 8. If we projected beyond year 8, dividends could continue to slowly increase, decreasing the time to “make up” the $50m in initial equity. Under this conservative scenario, $50m is paid back to the pension fund by year 16.
• #12: By year 8, the bank is solidly profitable. There was no need for private investment, borrowing through bonds, or for any other money-raising activity. If there was no dividend payment the figures for ROE would be 19.20% and for ROA 1.32% which compares favorably to both the original Moore sample spreadsheet and to the balance sheet for the highly successful Bank of North Dakota. Questions?