The Case for Social Banking: Replacing the Federal Reserve

The United States is in desperate need of a new banking system. Today, private interest controls American finance. This must change, and the New Nationalists of America are certain that with effort and sound thought, it can.

In September 2025, North Dakota’s Republican governor, Kelly Armstrong, stood in front of a housing-policy conference and was asked about his views on the public bank his state has run for over a century. He plainly said that there was no way North Dakota could pass something like it today without being “accused of socialism,” and added: “We like having it.” North Dakota is one of the reddest states in the country, and its people treat the bank as an inheritance they could never dream of selling. North Dakota’s public bank has worked for more than a hundred years, and it raises a question that America must answer. Why does the rest of our nation not have a bank that serves the people?

Long ago, North Dakota’s wheat farmers learned the hard way that a wealthy state can still be looted so long as the men who control its financing aren’t held accountable. The country’s productive economy now stands where those farmers once stood: farms, factories, and Main Street lenders today stand dependent on a financial system they do not govern. The New Nationalists of America propose the remedy the farmers chose a century ago, scaled nationally. We argue that the Federal Reserve and the banking system built around it should be replaced, not reformed, by Social Banking: A Public Monetary Authority in place of the Fed, a public bank in every state on the North Dakota model, a National Production Credit Corporation, and a public account for every citizen, with community banks and credit unions operating as chartered partners inside it.

The Current System

America already has a public banking system. It is simply governed as if it were private. Between 1930 and 1933, roughly 9,100 American banks suspended operations. President Roosevelt declared a national bank holiday in March 1933, federal deposit insurance began on January 1, 1934, and, through the Reconstruction Finance Corporation, Washington bought preferred stock in the banks themselves: about $1.17 billion into nearly 7,400 institutions, close to a third of the system’s capital at its peak. Banks that received that capital were significantly less likely to fail. In 1934, nine banks failed. When dollar funding seized up around the world in 2008 and again in 2020, the Federal Reserve extended dollars to foreign central banks through swap lines that peaked at about $580 billion in December 2008 and $449 billion in May 2020.

The Federal Reserve’s Board of Governors is a federal agency, with seven members appointed by the President and confirmed by the Senate. But each of the twelve regional Reserve Banks has bank shareholders, who earn a statutory dividend of up to 6% and elect six of the nine directors on its board. The market under that backstop has kept consolidating. The FDIC counted 4,238 insured institutions in the second quarter of 2026, down 41 in a single quarter, 36 of them through mergers. As of 2023, banks with under $10 billion in assets were 97.8% of all banks by number and held only about 14% of banking assets. Community banks are disappearing into larger institutions at a rate of dozens a quarter, while the institutions at the top are the ones the public has repeatedly shown it will stand behind. That is an arrangement of private governance over a financial industry whose failure will be paid for by the American people.

The Prototype: North Dakota

North Dakota already runs the model of the America of tomorrow. It was founded for self-defense. In the early 20th century, North Dakota’s wheat farmers were at the mercy of grain dealers and banks headquartered in Minneapolis and Chicago, who could suppress the price of a farmer’s crop and, in the same season, charge up to 12% on the loan he needed to grow it. The Nonpartisan League rode that grievance into the governor’s office and the legislature in 1918, and in 1919 chartered the Bank of North Dakota and a state-owned grain mill in the same session. The bank opened on July 28, 1919, with 2 million dollars in capital. One state representative wrote that the bill “looks to me to be socialist in the main points.” A century of continuous, profitable operation has settled that argument in practice.

The most important fact about the bank is in the operating policy the legislature gave it in 1919: it exists to be helpful to and assist in the development of other financial institutions, and not, in any manner, to be harmful to them. So it rarely writes a loan to a farmer or homeowner directly. When a community bank wants to make a loan larger than its capital comfortably allows, the bank buys a participation and shares the risk. State and local government deposits are required by law to sit in it, and that deposit base, roughly ten billion dollars in assets as of 2024, is the balance sheet that lets it stand behind its private partners. The result is the opposite of what its critics predicted: North Dakota has more local banks per capita than any other state in the Union.

The Industrial Commission, made up of the governor, the attorney general, and the agriculture commissioner, oversees the bank alongside a seven-member advisory board appointed by the governor, on which at least two seats must go to officers of locally owned banks. The bank made the first federally insured student loan in the United States, in 1967. It stepped in with disaster lending after the 1997 Grand Forks flood and the 2011 floods in Minot and Bismarck. Through the 2008 panic, it needed no bailout and reported a profit. North Dakota proves, single-handedly, that a public bank can be profitable for a century, can strengthen community banks, can be run by elected officials, and can still serve the public.

The Record: Turning to Europe

North Dakota is one instance of an idea that governments around the civilized world have been building for a century and a half. It comes in four distinct forms, and each form corresponds to one piece of our proposal.

Public central banking: Britain nationalized the Bank of England on March 1, 1946. At first, they did very little. The Bank remained the Treasury’s adviser, agent, and debt manager for decades. But the central bank Britain has today is the product of a second change, in 1997, when the government gave the Bank operational independence to set interest rates. Public ownership of a central bank is compatible with a stable monetary system, but ownership is not what makes monetary policy credible. Rather, it is independence under a public mandate that does.

Public savings institutions: Britain has run a public savings bank since 1861, one of the world’s first postal savings systems. It now holds £231 billion for 24 million customers, every pound guaranteed by the Treasury, and has provided public accounts for ordinary people for 160 years. Chile’s BancoEstado, formed in 1953 by merging public institutions covering savings, mortgages, farm credit, and industrial credit, reports that it now serves more than 16 million clients. Its CuentaRUT account, open to anyone regardless of income or credit history, has more than 13 million open accounts, and the bank earned over $1.1 billion before taxes in 2025. These institutions are the model for our “public account” proposal. They are not business lenders, and they do not need to be.

Wholesale and promotional banks that lend through private banks: North Dakota’s bank is one such bank. Germany’s KfW is another: In its core domestic business it lends through the borrower’s own bank, which makes the loan in its own name, stays responsible for it, and refinances through KfW. In one of its main small-business programs, KfW takes on half of the default risk, and it describes its own model as promotional banking without a primary profit-making objective and without a trading book. Britain offers another example. In 1945, its government and the Bank of England pressed the clearing banks into founding a corporation to supply long-term capital to small and mid-sized firms, meant to close a gap an official inquiry had named in 1931. The banks themselves held the shares, and the corporation still operates today as a listed investment firm.

Emergency public capital: America’s own 1930s experience belongs here. The Reconstruction Finance Corporation recapitalized banks, and the Home Owners’ Loan Corporation bought and refinanced about 1 million delinquent mortgages between 1933 and 1936, roughly 1 in 10 non-farm owner-occupied homes, taking the worst loans off the banks’ books at nearly full value.

One study of 764 major banks in 50 countries found that government-owned banks increased lending in crises while private banks cut. Though one international study of public banking found that heavy state ownership was associated with slower financial development and lower growth in the decades that followed, further research has since demonstrated that this association fades remarkably as a country’s financial system and political institutions mature. Both sets of findings point the same way: That it is the rules under which the banking system operates that matters the most.

Our Platform

The NNA’s program does not need to invent the next banking system from scratch. North Dakota has built its first layer, and the record tells us how to build the rest:

First, a Public Monetary Authority takes over the Federal Reserve’s functions, so that the people who govern America’s money answer to the people who use it. It has a statutory mandate of stable prices, maximum employment, and financial stability. Its governors serve long, staggered, non-renewable terms. Congress sets its mandate but not its interest rates, and the Authority publishes its decisions and its reasoning. Britain’s experience is that this independence is what makes a public central bank credible.

Second, a National Production Credit Corporation supplies and guarantees wholesale credit through private banks and community lenders. Here the design has to be careful, because a guarantee that is too generous invites reckless lending. The Corporation therefore guarantees no more than 75% of any qualifying loan, the ceiling the Small Business Administration’s flagship 7(a) program applies above $150,000, and the originating lender keeps the rest of the risk, which it may not hedge or sell. Guarantee fees are priced to expected losses so that the loss reserve pays for itself over the cycle, and any shortfall is appropriated openly rather than buried. Loans are underwritten on cash flow, with collateral and borrower-equity requirements set by published rule rather than waived by favor. The Corporation lends directly only where no chartered partner will serve a county or a sector, and then on published terms. Higher guarantee rates are an emergency tool, authorized by explicit vote for limited periods, as when KfW raised its risk-sharing to as much as 90% for small and mid-sized firms during the 2020 pandemic.

Third, state banks on the North Dakota model should be established in all fifty states, keeping state and local deposits at home instead of on a Wall Street balance sheet. They complement local lenders and never compete with them.

Fourth, a public account for every citizen and business, held at the Monetary Authority, gives ordinary households what our brothers in Britain have had since 1861: a safe place to hold money and make payments, backed by the public. Public accounts are for saving and payments. They do not make loans.

Fifth, a Monetary Authority will issue the money and settle the payments; the Production Credit Corporation will supply and guarantee wholesale credit; the state banks will hold the public’s deposits and partner with local lenders, the way North Dakota’s bank does; and the community banks and credit unions, chartered as partners, will make the loans on Main Street.

This will replace the Fed’s bank-elected governance with public ownership and a public mandate. It aims to end the implicit public guarantee that attaches to the largest institutions: public will go only to institutions chartered as partners, which accept the public’s rules on local lending, no trading books, and no borrowing on the public’s guarantee to buy yield. And it will replace the Wall Street balance sheet as the place where the people’s money sits. It will not replace the community banker, the credit union, or the lender who knows the farm. Those are the institutions that will fare far better with a public partner than without one.

The NNA’s Eight Operating Rules

We must be precise about the operating rules of the system we propose:

1. A hard wall between lenders and the printing press: The Monetary Authority and the Production Credit Corporation must be established as separate institutions with separate balance sheets. Monetary policy will work as it does today: the Authority will set the rate it pays on reserves and public accounts, buy and sell Treasury securities in the open market to manage liquidity, and lend against good collateral in emergencies to any chartered partner on published terms. What it may not do is buy the bonds of, lend to, or recapitalize any public lender on terms it would not offer every chartered partner. And, like the Fed today, it will not buy Treasury debt directly from the Treasury. The Corporation will fund itself with its own bonds and an explicit, appropriated loss reserve, never through the Authority.

2. Independence under a public mandate: Congress will set the goals and the Authority will choose the means. Governors will serve long, staggered, non-renewable terms, and every decision will be published with its reasoning.

3. Lending by rule, not by favor: Eligibility, pricing, and loss formulas will be written into statute, independent audits will be required, and local bankers will sit on the boards, as in North Dakota.

4. Skin in the game: Guarantees will be capped at 75%, originators will keep the rest unhedged, and fees will be priced to expected losses.

5. Savers are paid: Producers will be subsidized through an explicit, budgeted loss reserve, never through interest rates held below inflation, which in the postwar decades, when real rates across advanced economies were negative about half the time, worked as a tax on everyone with a savings account.

6. No trading books, and no borrowing on the public guarantee to buy yield: A public guarantee will exist to support lending to the real economy through local partners.

7. Lean against the cycle, then exit: The charter will carry a countercyclical mandate to lend more when private credit contracts. The public must buy distress instead of freezing it, and every rescue carries a sunset: what the public will buy, the public will sell.

8. Complement, never compete: This was the founding rule of North Dakota’s bank, and it will be the founding rule of this system.

Getting From Here to There

Replacing the Federal Reserve will be the largest step in our banking program, and for that reason it will come last. We propose to take it in three stages, and not to begin the third until the first two have worked:

Stage one: build where the law already allows. Any state can charter a bank on the North Dakota model with a legislature, a deposit rule, and an operating policy. Stage two: add new layers that do not touch the federal monetary system. Congress can create the National Production Credit Corporation without changing monetary policy at all. It can also authorize public accounts, which can run on the Federal Reserve’s own payment rails before the Fed’s governance changes.

Stage three: convert the Fed by statute. The Public Monetary Authority will become the Federal Reserve’s legal successor. On the day of conversion, every asset and liability will pass to the Authority unchanged. Federal Reserve Notes in circulation, reserve balances, and the Treasury’s account will continue. Nothing will be defaulted on, redeemed, or revalued. The swap lines with foreign central banks will be carried over by statute and by notice to the counterparties, who have every reason to agree. The banks’ ownership of the Reserve Banks will end. Banks will get back what they paid in and will be released from the unpaid half, and the statutory dividend will end. The Board of Governors, already appointed by the President and confirmed by the Senate, will become the Authority’s board. Bank-elected directors will disappear. The regional offices will remain as research and operations hubs, with leaders chosen through a public process. The inflation target and the tools in use on the Fed’s last day will be the Authority’s on its first. Any change of framework afterward will go through the Authority’s own public procedures.

What Now

For most of the last century, the answer to why America has no social banking system was inertia. That has changed, and the reasons make the case more urgent, not less. Community banks, the institutions public credit exists to reinforce, are disappearing at an accelerating rate: 32 credit unions acquired or announced plans to acquire 35 community banks between January 2024 and April 2025 alone, and because credit unions are not bound by the Community Reinvestment Act’s anti-redlining lending requirements the way banks are, each acquisition quietly shrinks the pool of capital required by law to serve low- and moderate-income communities.

The rest of the country has started to notice. California passed the nation’s first law allowing cities and counties to charter their own public banks in 2019, and lawmakers there have introduced a State Bank Act explicitly modeled on North Dakota’s. San Francisco has also placed a public bank measure on the November 2026 ballot, the first city in the country to put the question directly before its voters. Los Angeles has a majority of its city council on record funding a feasibility study. Wisconsin introduced its first public banking bill in 2024, Arizona followed in 2025, and advocates in New Mexico are organizing toward a 2027 push. More than 900 public banks operate worldwide, excluding central banks, holding a combined fifty-five trillion dollars in assets. The United States, the wealthiest nation in that count, still has only one.

The path forward will not begin in Washington. It will begin in our nation’s fifty state capitals, where a public bank requires only a legislature, a deposit rule, and an operating policy that has worked in North Dakota since 1919. Each rung of our proposal stands on its own and has a precedent: the state bank in North Dakota, the Production Credit Corporation in the German KfW’s decades of wholesale credit through private banks, the Monetary Authority in Britain’s 1946 central bank, and the public account in Britain’s 1861 savings bank.

Together, these proposals can break the old system and build something new that works for all Americans: rich, poor, and middle-American alike.

It says something strange about the current political landscape that the loudest advocates for public banking are almost entirely progressive urban-coastal coalitions, while the institution they are trying to copy was built by the wheat farmers in North Dakota, hard working Americans furious about being exploited by distant financiers. That is backward, and in truth there should be nothing partisan about a producing nation refusing to let its own money subsidize a distant balance sheet instead of the family farm and the small manufacturer down the road. Rural America built this idea, and has run it profitably for over a lifetime.

American people: Look no further than Great Plains of North Dakota for the future of your nation’s economic sovereignty.