Bonds and the Boycott
The 1919 Legislature might have established the Bank but the bank needed to sell state bonds to fund its lending programs.
The bonds were first offered to North Dakota buyers, appealing to voters' League loyalties to make the Bank of North Dakota a reality. The Industrial Commission believed that if it could sell $500,000 worth of the bank-series bonds to customers within the state, it would show potential investors that voters truly supported the Bank and that the bonds were a viable investment. North Dakotans responded. Out of state investors did not.
When it became apparent that the bonds were not selling despite the 1920 referendum approval of the bank, the Industrial Commission performed some interesting slight-of-hand by buying the remaining 1.5 million dollars worth of bonds with public deposits already on deposit with the Bank and then endorsing the checks back to the bank. Although this capitalized the bank at the required levels, it did not add a single dollar of actual money to the bank's operations.
The Bank of North Dakota was not the first state-owned bank to be created. Seven states had established wholly owned state banks. Three failed. Three were occasionally profitable but were eventually liquidated. Only South Carolina's bank was profitable but that also was closed before the turn of the century. North Dakota learned from these earlier attempts at state-owned banking.
The Industrial Commission knew that the Bank of North Dakota was seriously undercapitalized and that the concessions it had agreed to crippled the Bank's short-term earnings potential. If the bank was to be the successful linchpin of the League's Industrial Program, it needed to be capitalized with out-of-state money.
Photographs from the collection of
Institute for Regional Studies, North Dakota State University State