The Bank of North Dakota was born of political radicalism

EDITOR’S NOTE: Public banking proponents point to the Bank of North Dakota, Bismarck, as a model for how government might play a role in providing credit. Whether the BND model is replicable is an open question. To mark its centennial in 2019, the BND commissioned Mike Jacobs, former editor and publisher of the Grand Forks Herald, to write its history. Jacobs shares some of the BND’s story here.


The Bank of North Dakota is celebrated around the country as a success story, now 100 years in the making. It has “helped shape and expand the state’s economy,” as the 2019 legislature declared in a celebratory resolution recognizing February 19 as “Bank of North Dakota Day.”

The history of the BND is not without drama, however. Its first “director general” became involved in a number of schemes and was fired; more than once the staff was purged and replaced by political partisans; on one occasion state funds were transferred to a Minnesota bank operated by the governor’s brother-in-law. There have been instances of political patronage, nepotism, fraud, theft and poor investment decisions. At least once, bond sales benefited individuals instead of the state. A second case is disputed. Once, a con man impersonating an officer of another bank tricked a teller out of cash. On its darkest day, a collection attempt turned deadly and the bank’s loan officer was killed and a deputy sheriff seriously injured.

The BND is clearly a creature of the state and is necessarily a product of North Dakota’s colorful political history.

North Dakota became a state in 1889. Its potential as a wheat-growing region was proven after the Panic of 1873, when Jay Cooke took Northern Pacific Railroad bonds held by wealthy investors and redeemed them for North Dakota land. The resulting Bonanza farms encouraged immigration and investment in infrastructure, and produced a number of political leaders, including the state’s first governor and one of its first U.S. senators. These men — and they were all men because women did not yet have the right to vote — had personal and financial connections in the eastern United States, where they naturally turned to further their interests and to protect their investments.

The railroad was especially important. Historians have suggested that the Dakota Territory became two states because the NPRR believed it could control four U.S. Senators. The NPRR’s agent, Alexander McKenzie, became a kind of bogeyman in North Dakota, a personification of “Big Biz.”  He didn’t always get his way, and his influence may be exaggerated, nevertheless McKenzie provided a useful foil for reformers of several stripes.

Popular democracy was among reformers’ tools. North Dakota became an early adopter of such innovations as direct election of U.S. Senators, a move aimed squarely at McKenzie and his machine, as well as initiative, referendum and recall. Equally influential were prohibitionists and other moral crusaders, many of them women, and suffragists.

An ordinary workday inside the original bank building. Photo courtesy of the State Historical Society of North Dakota.

At the same time, the state attracted many new residents. The population doubled between 1880 and 1900, and doubled again by 1920, to 600,000 people. Many were immigrants. The percentage of foreign-born individuals in North Dakota was larger than any other state except New York. A large percentage of these people came from northern Europe, bringing traditions of religious piety and community involvement.

They also came face to face with economic disadvantage. This is one of the themes identified by historian Elwyn Robinson when considering North Dakota’s history. Other themes are remoteness and dependence; these are not unique to North Dakota. Nor is a fourth theme — radicalism — which emerged as a counterweight to the others.

In common with other “westerners,” North Dakotans embraced economic reforms, including free coinage of silver. They also deployed their political innovations to improve their economic chances.

The most important of these innovations was a campaign for a state-owned terminal elevator. In 1912, three-fourths of voters approved an amendment allowing the state to operate elevators in Minnesota or Wisconsin. In 1914, voters approved a state-owned terminal elevator in North Dakota.

When the state legislature failed to act in 1915, A.C. Townley seized the political moment to form the Nonpartisan League, which quickly took advantage of the state’s open primary to gain control of the Republican Party and the state legislature.

The meteoric rise of the Nonpartisan League is the stuff of legend. The truth is that without Townley, there would have been no League and without the League there would have been no Bank of North Dakota.

A.C. Townley, founder of the Nonpartisan League. Photo courtesy of the State Historical Society of North Dakota.

Townley had been an organizer for the Socialist Party. He made some bad investments, principally in a flax farm in the westernmost North Dakota station on the NPRR mainline, near Beach. Townley himself never sought office but his oratorical and organizational skills attracted members to the League. Its candidates won statewide offices, including the governorship, and gained a majority in the North Dakota House of Representatives.

Holdovers made a majority in the Senate out of reach.

The League’s initial platform didn’t mention a state-owned bank, calling instead for a system of rural credit banks. The Governor, Lynn J. Frazier, used that phrase in his message to the legislature in 1917. At the opening of the 1919 legislative session, Frazier called for a state-owned bank. Six weeks later, the bill was passed.

Leaguers sensed that they’d made history and staged an unprecedented signing ceremony. “To the accompaniment of music and amid the waving of flags and the clicking of moving picture machines, Governor Frazier signed the bills which fix the status of the state,” the Grand Forks Herald said in an editorial probably written by J.D. Bacon, its publisher, an implacable foe of the League and its programs. “For the first time in history, there exists in the United States a Socialistic commonwealth.”

Early in its history, the BND faced a series of what might be called “existential challenges,” on the ballot, in the legislature and in the courts. Early advocates turned against one another, often using the BND as a political punching bag. Once clear of these hurdles, the BND faced other challenges, including the refusal of financial institutions to buy its bonds, the reluctance of local governments to use its services, the indifference of state officials assigned by law to operate it, and the shenanigans of some who saw the BND as a way to advance their own political interests. The BND passed some of these tests, but the League failed in its larger objective, a system of state-ownership — its so-called Industrial Program.

The constitutionality of state banking was upheld by the U.S. Supreme Court, which said, in June 1920: “If the State sees fit to enter upon such enterprises as are here involved, with the sanction of its constitution, its legislature and its people, we are not prepared to say that it is within the authority of this Court … to set aside such actions by judicial decision.”

The League took the court’s decision as an endorsement, but its program soon faced a bigger hurdle, in part by its own design. The League had initiated a constitutional amendment allowing voters to recall elected officials, and its opponents used this tool to force members of the Industrial Commission to face the voters.

The composition of the Commission had split the League: Hardliners had argued for an appointed panel; Townley and others insisted on elected members, the Governor, the Attorney General and the Agriculture Commissioner. The Hardliners prevailed and all IC members were defeated in the recall election, held on Oct. 28, 1921.

Frazier became the first Governor recalled from office. His replacement was R.A. Nestos, who had spoken no English when he had immigrated from Voss, Norway, and enrolled in the first grade at a public school in Buxton. Three decades later, Nestos was Governor.

The Bank of North Dakota building in 1919. The BND operated at this location for 90 years. Photo courtesy of the State Historical Society of North Dakota.

A measure that would have closed the BND was defeated at the polls.  The margin was narrow, but Nestos vowed to continue the BND, saying: “It seems to me that it is but right and just and wise to give it a full, fair and honest trial.”

And so the BND survived.

As the BND has aged, it also has matured, become less the focus of the state’s politics and more the focus of its economic life. The fight for the BND reflected the historical themes of remoteness, economic disadvantage, dependence and radicalism, and its success highlights something else: adjustment.

Another of historian Robinson’s themes calls to mind an additional historical reality — that the state was overbuilt. He called it “The Too Much Mistake,” and it is the only one of his themes that the BND does not reflect.

For North Dakota, the BND has proven to be just right. Its uniqueness has become a point of pride to North Dakotans, which has helped to sustain the bank itself.

The BND’s success has drawn attention, perhaps even envy, from office holders in other states who wonder, could this work in our jurisdiction?

It’s possible that the idea of public banking will spread, but the BND can be only an example. North Dakotans have a state-owned bank. Other states must let their voters decide.