Benefits of Having the Bank of North Dakota to local Banks and Credit Unions

Benefits of Having the Bank of North Dakota to local Banks and Credit Unions
By Scott Baker and Grok 4.1
12/3/25

Scott: Do Community Banks and Credit Unions in North Dakota benefit from having the bank of North Dakota in specific ways that other state-based local lenders lack? Are there notable differences in community bank profit margins and the percentage of retail community bank deposits, versus large global out-of-state banks, in North Dakota?

Grok: Benefits of the Bank of North Dakota (BND) to Community Banks and Credit Unions
Yes, community banks and credit unions in North Dakota benefit in several specific ways from the BND, the nation's only state-owned bank, established in 1919 to promote agriculture, commerce, and industry. Unlike other states' local lenders, which lack a dedicated state-level partner bank, BND operates as a wholesale "bankers' bank" that exclusively supports local institutions without competing for retail customers. This structure enhances liquidity, reduces risk, and boosts lending capacity for North Dakota's community lenders, enabling them to serve local economies more effectively than their counterparts elsewhere. Key benefits include:
Loan Participations and Risk Sharing: BND partners on nearly all its loans (about 50% of its $3.9 billion portfolio), buying portions of loans originated by local banks and credit unions. This allows smaller institutions to exceed their legal lending limits, fund larger projects (e.g., agricultural startups or small businesses), and share risk. Without BND, these lenders would face higher capital constraints and might decline viable deals.
Interest Rate Reductions ("Buy-Downs"): BND subsidizes rates on partnered loans, enabling community banks and credit unions to offer lower-cost financing to borrowersoften below market rates available in other states. This attracts more business to local lenders and supports economic development in rural areas.
Guarantees and Secondary Market Support: BND provides loan guarantees and purchases mortgages or other assets from local portfolios, freeing up capital for new lending. It also issues letters of credit to help community banks secure government deposits without tying up collateral, further expanding their lending potential.
Additional Liquidity and Services: As the depository for all state funds (about 15% of total state deposits), BND channels these low-cost resources into partnerships, providing check clearing, reserve management, and federal funds access. During crises (e.g., 2008 recession, COVID-19, 2025 federal shutdown), BND has enabled faster relief lending, such as low-interest loans for furloughed workers.

These mechanisms have made North Dakota's community banking sector uniquely resilient: The state has six times more local banks and credit unions per capita than the national average (89 banks and 38 credit unions), and they control a dominant market share. A 2011 Federal Reserve Bank of Boston report noted that BND "enhances the viability of small banks" by sharing risks, particularly for the 50% of state deposits held by institutions under $500 million in assets. In contrast, local lenders in other states often rely on volatile national markets or larger banks for similar support, leading to reduced lending during downturns.

Differences in Profit Margins and Retail Deposit Shares
North Dakota's community banks and credit unions exhibit notable structural advantages over large global/out-of-state banks (e.g., Wells Fargo, U.S. Bank) in deposit market share, driven by BND's support. However, direct data on profit margins shows community institutions operate with inherently narrower margins due to their not-for-profit or community-focused models, though BND indirectly bolsters their overall profitability through higher lending volumes and stability. Here's a breakdown:

In summary, BND's model creates a symbiotic ecosystem where community lenders thrive on enhanced scale and security, capturing most retail deposits and sustaining profitability through productive lendingadvantages unavailable to local institutions in other states. This has contributed to North Dakota's economic outperformance, including budget surpluses and low unemployment, even amid national volatility.