Nevada can grow by investing in own banks

Bob Thomas' article (Opinion, March 23): "All that's left of banks in Carson City is the branches" applies not just to Carson City but to the whole state.

The centralization of Nevada banking, first through interstate banks, and now through international ones, has left Nevada vulnerable to another 1992 debacle when credit gets tight.

Out-of-state banks are controlled by out-of-state directors who service first their primary markets, which are out-of-state.

It was predicted in the Wall Street Journal, "that eight to 10 institutions will account for 50 to 80 percent of the nation's banking business within three to five years (lead story of July 26, 1994).

The prediction is coming true, especially in Nevada. We are now in worse shape to deal with a banking contradiction than we were in 1992.

1992 is the year of the last banking crunch in Nevada.

In that year, Nevada, with the fastest-growing economy in the country, saw its bank deposits collapse by over 26 percent, the most severe contraction of any of the 50 states! All of the interstate banks (which means the banks that are controlled from outside Nevada) decreased their loans. At the same time, all of the smaller, unit or community banks that are meeting the growing needs of Nevada's economy, increased their loans by up to 74.8 percent.

Nevertheless, the interstate banks that control 90 percent of all of Nevada deposits contracted their loans to the extent that there was a net overall loss of available purchasing power in our state of 26.8 percent.

Thus, in one year, because most of Nevada's bank deposits were controlled from out of state, literally billions of dollars of Nevada capital was exported to the primary markets of the interstate banks.

A 26 percent drop in available purchasing power in an economy has at other times proven enough to cause a major depression.

In 1992, the effect of the violent contraction of purchasing power was softened some by the infusion, through the casino industry, of large sums of new money for construction.

But the next time, when the international banks raid Nevada's bank credit, we may not be so lucky.

If we're going to be able to build up Nevada's economy and the infrastructure needed to make it stronger and more versatile, we need more capital, not less, to serve Nevada's economy.

Nevada is now a "banking colony."

Barron's observed: "The last obstacles to nationwide interstate banking are falling, but ... the United States could be on the verge of internal 'economic colonization' - in which already big and still expanding super-regional and money-center banks headquartered in 'colonizer' states drain funds from ... 'colonies' to lend elsewhere. The bigger banks will continue to acquire deposits nationwide, but lend disproportionately in their home states, where they know the business. States in which the big banks have their headquarters and their traditional bases of business will be the winners. New York will do well, ...

"States that lose or have lost their major banks to outsiders could become 'economic colonies.' The top five colonies ... will be Florida, Arizona, Nevada, Washington and Maine. The major economic decisions will be made elsewhere. The expression 'Florida banking' will become an oxymoron."

So has "Nevada banking."

The importance of the retention of Nevada capital in the Nevada economy is shown by a study that was done by the Nevada Bankers' Association in 1980.

The purpose of the study was to find out how much the investment of Nevada capital in Nevada benefited the Nevada economy. The study (Paper No. 80-10 The Indirect Influences of Deposits on the Nevada Economy) concluded that, if $10 million of the state treasurer's unexpended balances were invested in Nevada (rather than loaned to out-of-state interests, mostly in New York) the following benefits would result: "an increase in personal income in Nevada of $4.7 million; an increase in personal income in Nevada of $4.7 million; an increase in taxable sales in the state of $4.1 million; an increase of 210 in the number of people employed; an increase in tax collections of $140,000, a decrease in the unemployment rate of .0204 percent; and a decrease in unemployment insurance claims of $112,000."

This study shows that by developing ways to keep more of Nevada's capital in Nevada, we can make more jobs, increase tax revenues without increasing tax rates and reduce unemployment.

So what's the good news?

There are billions of Nevada dollars that can be invested in the Nevada economy. This money will not take flight with the next banking crunch.

By investing Nevada's money in Nevada, we can generate thousands of new jobs.

Each of us has control over where we deposit our own money. If we put it into a community bank, it results in loans to Nevada businesses, not out-of-state businesses. When credit is tightened, Nevada community banks don't recall credit extended to Nevada businesses in order to service their primary, out-of-state markets, as interstate (and now international) banks do.

If we move our banking accounts to Nevada community banks, we can easily double (to 20 percent) the amount of our bank credit that is loaned in the Nevada economy. This move doubles the amount of bank loans that won't be collapsed the next time credit gets tight.

As Nevada's independent community banks continue to invest their credit in the growing Nevada economy, and interstate and international banks invest elsewhere, we could more than double the amount of Nevada credit that stays in Nevada.

Happily, new community banks keep coming on line to replace the ones that are gobbled up by the big banks. The First National Bank of Nevada (corner of Carson and William streets) is a community bank. There you will find some of the friendly faces you used to see at Comstock.

We can urge the Legislature to expand the present State Municipal Bond Bank to perform more commercial services. If we follow the example of North Dakota and get a full-fledged "mini-fed" serving our needs, we'll be able to keep our community banks serving our communities - and build up Main Street in Nevada, not Wall Street in New York.

Dave Horton, Carson City attorney, has published books on money and banking and serves as legal counsel for the national Committee to Restore the Constitution.