Banking in Arizona and North Dakota: a Contrast

FDIC State Profiles ND Q1 2014   FDIC State Profiles AZ Q1 2014

Financial Institutions

The links above will lead to FDIC reports– one for North Dakota and one for Arizona. These spreadsheets contrast the condition of not only banking but general economic health in these two states. Proponents of public banking oftentimes counter arguments that a public bank will supplant commercial banks with the statistic of the number of financial institutions in North Dakota. Looking at “Banking Trends”, please compare “institutions #” between Arizona (23) and North Dakota (87) and also the trends. Consider that Arizona has a population of more than 6.6 million and North Dakota has less than 740 thousand. So it is clear that the people of North Dakota enjoy a great deal of choice in banking compared to Arizonans. Keep in mind that the FDIC is reporting distinct financial institutions; as opposed to the number of branches.


If competition in business always benefits the consumer (as we are taught) then North Dakota’s financial consumers are way ahead of Arizona’s. It is surprising that “Total Assets” of Arizona’s banks is only $18.87B compared to North Dakota’s with $25.54B. So per capita, North Dakota’ financial institutions hold approximately $34,500 while Arizona’s hold $2,859. Why such a great disparity in assets held? Could it be that in ND, since the great majority of financial institutions are local, they retain their assets while in Arizona, the great majority are “Wall Street” banks, their assets flow to home offices on Wall Street?

Local or “Wall St.” Banking?

This assumption is supported by the “Subchapter S Institutions” item. North Dakota has 58, down just 3 since 2012 while Arizona has only 2. A  “Subchapter S” corporation is typically a small corporation because income and losses are “passed through” to shareholders (limited to 75) while a “C” corporation does not pass through, it pays its own taxes and there is no limit on the number of shareholders. It is reasonable to conclude that Arizona is very dominated by “Wall Street” banks, not local banks while the reverse is true for North Dakota.

Which Model is Stronger: Local or Wall St. Banking?

Local banking with its close ties to the community also seems to mean stronger banking. Looking at “Asset Quality, Past Due and Nonaccrual Loans” item find that Arizona’s best reporting was 1.58% since 2012 while North Dakota’s best was .73%; less than half. In 2013, Arizona reported 3.08% troubled loans while North Dakota reported 1.23%. Other characteristics show that ND’s banking is healthier: Tier 1 Leverage, Return on Assets, and Loans to Assets.

Where Is the Lending?: A Comparison

The most telling differences between these two banking models is found in the “Loan Concentrations” section. It seems incredible that in Arizona, there is no lending for agriculture. If this is the case, how are farms in Arizona bought and sold? How do young farmers get started if they are unable to access credit at favorable rates? Contrarily, in ND, it seems there is robust agricultural banking. In fact, Agriculture is by far the largest industrial concentration in banking with 271% the median of Total Risk-Based Capital. Could this be because ND banks lend to aspiring young farmers; that in ND, credit is readily extended to farmers who want to buy new equipment, buildings, livestock, fertilizer? Looking at the other loan concentrations, please note that in Arizona, consumer loans account for less than 5% of the total while in ND it is more than 30%. Does that mean that in Arizona, these mostly Wall Street banks direct their customers to credit cards, while in North Dakota, these community banks whose officers are local people, who have deep roots in the community and have the authority to lend to their neighbors on favorable terms, do so? We think so. Commercial real estate, an asset with clear and quantifiable value seems to be the darling of Arizona banks with 367% of the total.  Nonresidential Real Estate, at 269% runs a close second. Is it reasonable to assert that because real estate is a “hard asset” that Arizona banks are severely risk averse? Arizona bankers seems to want hard collateral on their loans. This gross imbalance is not evident in ND’s loan portfolio. Commercial Real Estate is high (95%) as is Nonresidential (56%). However, we also find that Commercial and Industrial lending in North Dakota outpaces Arizona by 26% (85% vs 63%). Looking at the property-collateralized Residential Real Estate portions of the two portfolios, again we find a significant difference with Arizona at 83% of the total while ND is at 56%; a difference of 32%.

Stagnation or Growth

All of this banking information really boils down to how the people in the two states fare. North Dakota has a 2.6% unemployment rate; almost 3 times less than Arizona’s 7.4% rate and it has not been higher than 3% since 2012 compared to Arizona with 8% unemployment in 2012 and 2013. If lending is the life blood of economics, it is clear that in North Dakota, a strong economy is built on local banking with the full faith and credit of the State of North Dakota (aka “The Bank of North Dakota”) backing them up. Arizona’s Wall Street banking model augurs for economic stagnation.



4 thoughts on “Banking in Arizona and North Dakota: a Contrast

  1. Wow, just the facts show they both begin with “S” but snow is out producing sun. Using the credit of the state to attract job building industry with low cost start up money could tip the scales in favor of Arizona if we had a public bank.


  2. Interesting comparison. I wonder how much North Dakota’s booming oil-driven economy (at least in some parts of the state) has to do with the differences?


    • Much of North Dakota’s oil boom money was earned after 2010. ND had a strong economy long before they discovered fracking. The ND public bank has bankrolled many infrastructure projects– particularly rail lines– to boost the fracking industry.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s