{"id":313668,"date":"2026-03-02T12:00:05","date_gmt":"2026-03-02T12:00:05","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=313668"},"modified":"2026-02-27T03:37:42","modified_gmt":"2026-02-27T03:37:42","slug":"regime-change-at-the-fed-from-big-bank-bailouts-to-local-productivity","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2026\/03\/regime-change-at-the-fed-from-big-bank-bailouts-to-local-productivity\/","title":{"rendered":"Regime Change at the Fed: From Big Bank Bailouts to Local Productivity"},"content":{"rendered":"
\"\"<\/a>

Image by ScheerPost<\/p><\/div>\n

\u00a0<\/em>25 Feb 2026 – <\/em>On January 30, when former Federal Reserve board member\u00a0Kevin Warsh\u00a0was nominated<\/a>\u00a0by President Trump as the central bank\u2019s next chair, markets sold off and gold and silver plunged. Investors were positioned for a \u201cdove,\u201d someone inclined to cut rates aggressively and keep money loose; and Warsh has a long-standing reputation as a \u201chawk.\u201d<\/p>\n

So wrote Michael Nicoletos in an article titled\u00a0\u201c<\/em>Everyone Is Focusing on the Wrong Thing<\/a>.\u201d<\/em>\u00a0But Nicoletos and some\u00a0other commentators<\/a>\u00a0are seeing something else on the horizon \u2013 a rebalancing of the banking system through an overhaul of the Federal Reserve itself. In recent months, noted Nicoletos,\u00a0 Warsh has argued that the central bank\u2019s\u00a0\u201c<\/em>bloated balance sheet\u201d has made borrowing \u201ctoo easy\u201d for Wall Street, while leaving \u201ccredit on Main Street too tight.\u201d That contrast \u2014 abundant liquidity for the largest financial institutions, scarcity for the communities that actually generate economic activity \u2014 is a structural flaw that has unbalanced the American economy.<\/p>\n

Nicoletos explained:<\/p>\n

For the better part of fifteen years, the dominant approach to economic management went something like this: the Fed buys massive amounts of Treasuries and mortgage-backed securities (Quantitative Easing), flooding the financial system with reserves. This pushes asset prices higher: stocks, bonds, and real estate. The people who own those assets feel wealthier. Through this \u201cwealth effect,\u201d they spend more. And since roughly 70% of U.S. GDP is consumption, the economy grows.<\/p>\n

As a result:<\/p>\n

The top 10% of Americans, who own the vast majority of financial assets, did exceptionally well. The other 90%, the average worker, the small business owner, the person trying to buy their first home, were largely left behind.<\/p><\/blockquote>\n

Nicoletos called the Warsh nomination a regime-change story, a shift in how policymakers think about growth, inflation, and the Fed\u2019s role in markets. Warsh has spent years at the Hoover Institution arguing that the Fed\u2019s balance sheet is bloated and that Quantitative Easing distorted markets. He has described QE-driven growth as a temporary \u201csugar high,\u201d and he has called for \u201cregime change\u201d at the Fed. Rather than controlling inflation through QE and higher interest rates, he argues, it should be focused on increasing supply through local productivity.<\/p>\n

Nicoletos observes that Treasury Secretary Scott Bessent, too, has been arguing that the economy needs to shift away from Wall Street-driven liquidity to Main Street-driven credit. Bessent says the era of the Fed being the primary engine of financial markets should end. Stephen Miran, a Governor at the Federal Reserve, has also been speaking publicly for lower rates, a smaller Fed footprint, and faster growth.<\/p>\n

The new approach, says Nicoletos, represents a fundamental shift in policy. \u201cInstead of relying on the Fed\u2019s balance sheet to inject liquidity from the top down, the idea is to use the banking system to channel credit from the bottom up.\u201d<\/p>\n

Echoes from the Treasury<\/strong><\/p>\n

In\u00a0<\/a>remarks before the\u00a0Federal Community Bank Conference<\/a>\u00a0on Oct. 9, 2025, Treasury Sec. Bessent said, \u201cSince 2010, we\u2019ve lost 3,600 community banks. That\u2019s not sustainable.\u201d He emphasized the collapse of new bank formation since 2008, the regulatory tilt toward megabanks, the need to restore local lending ecosystems, and a goal of \u201cParallel Prosperity\u201d \u2014 Wall Street and Main Street rising together. He affirmed, \u201cNo longer will regulation serve to entrench big banks and empower Washington bureaucrats to the detriment of community banks and the clients they serve.\u201d<\/p>\n

How would this rebalancing be carried out? In a letter in\u00a0The Wall Street Journal<\/em>\u00a0by Bessent and Sen. Bill Hagerty titled \u201cHow to Make Main Street Banks Great Again<\/a>,\u201d the co-authors observed:<\/p>\n

The biggest banks benefit from a perceived government guarantee that smaller institutions lack.<\/p>\n

This perceived guarantee has contributed to the steady disappearance of community banks. The U.S. has lost 3,600 of them since 2010, a 45% decline. Community banks\u2019 share of bank assets has fallen to 15% from 23%. Their share of outstanding loans has dropped to 20% from 27%. \u2026<\/p>\n

Despite holding only 15% of industry assets and deposits, community banks account for 40% of small-business loans and 70% of agricultural loans.<\/p>\n

Empowering them to succeed is essential to driving economic growth in America\u2019s heartland.<\/p>\n

\u2026 Dodd-Frank was supposed to end \u201ctoo big to fail\u201d but instead created \u201ctoo small to succeed.\u201d It\u2019s time for regulators and Congress to reckon with the damage that the act has inflicted on community banks and the families that depend on them. To expand opportunity for all Americans, the banks that serve Main Street must have the same chance to succeed as the banks that serve Wall Street.<\/p><\/blockquote>\n

The proposed solution of Bessent and Hagerty is legislation involving \u201ctargeted expansion of deposit insurance\u201d to include non-interest-bearing deposits over the current limit:<\/p>\n

This would put community banks on a more even playing field with their larger competitors, and provide small businesses more certainty to maintain their payroll and other operating accounts with community banks in times of stress. By bolstering depositor confidence and reducing the risk of runs, the policy would prevent costly failures before they happen.<\/p><\/blockquote>\n

How About Some \u201cMini-Feds\u201d for the States?<\/strong><\/p>\n

FDIC insurance coverage for business payroll is no doubt a good idea, but to really level the playing field, community banks need more. They lack the access to liquidity and the \u201cimplicit guarantee\u201d of the biggest banks, which remain \u201ctoo big to fail.\u201d A more comprehensive approach would be for states to establish their own \u201cmini-Feds\u201d as backstops for local bank liquidity and capitalization. For a model of how this can be done and how well it works, we have a 106-year-old example in North Dakota.<\/p>\n

The state-owned Bank of North Dakota (BND) has actually been called a mini-Fed for the state\u2019s local banks. North Dakota has maintained a stable, locally-rooted banking ecosystem while the rest of the country consolidated, and it has more community banks per capita than any other state. The BND provides correspondent banking services to virtually every financial institution in North Dakota. It provides secured and unsecured federal fund lines, check-clearing, cash management, and automated clearing house services for local banks. It participates in their loans and guarantees them. The banks are thus willing to take on more risk, and they have been able to keep loans on their books rather than selling them to investors to meet capital requirements.\u00a0 As a result, North Dakota banks were able to avoid the 2008-09 subprime and securitization debacles and the 2023 wave of bank bankruptcies.<\/p>\n

By partnering with the BND, local banks can also take on local projects that might be too large for their own resources, projects that might otherwise go to out-of-state banks or remain unfunded. Due to this amicable partnership, the North Dakota Bankers\u2019 Association endorses the BND as a partner rather than a competitor of the state\u2019s private banks.<\/p>\n

Unlike the Federal Reserve, which is not authorized to support state and local governments except in very limited circumstances,\u00a0North Dakota\u2019s \u201cmini-Fed\u201d\u00a0can help directly<\/a>\u00a0with state government funding. Having a cheap and ready\u00a0credit line\u00a0with the state\u2019s own bank reduces the need for wasteful rainy-day funds invested at minimal interest in out-of-state banks. The BND has also demonstrated the power of a state-owned bank to leverage state funds into new credit for disaster relief and other local needs.<\/p>\n

The BND has had an\u00a0average return on equity<\/a>\u00a0of close to 20% in this century. Truth in Accounting\u2019s annual\u00a0Financial State of the States report<\/a>\u00a0rated North Dakota #1 in fiscal health for 2025, with\u00a0a budget surplus per taxpayer of $63,300<\/em>. In 2024, North Dakota was\u00a0rated by Forbes Magazine<\/a>\u00a0the best state in which to start a business. The BND model is a win-win for local banks, the state government, ND taxpayers, and the state\u2019s local communities.<\/p>\n

Introducing Don Morgan, Public Banking\u2019s New Champion\u00a0<\/strong><\/p>\n

In the last 15 years, over 50 bills have been filed in states across the country for public banks like the Bank of North Dakota. But so far, none of those bills has passed. Why not? Opposition by big out-of-state banks was anticipated; but community bankers have also expressed concern, worried that the state bank will compete and take their business.<\/p>\n

Don Morgan, who has been BND president for the past two years, has now put those concerns to rest. The BND has long kept a low profile, but Morgan represents a new generation, willing to take the show on the road. He says he loves talking about the Bank of North Dakota. In two recent in-person presentations \u2014\u00a0at Harvard Law School<\/a>\u00a0and before New Mexico legislators and bankers\u00a0in Santa Fe<\/a>\u00a0\u2014 he has detailed the bank\u2019s history, structure and successes. He stresses that the BND is forbidden by law to compete with North Dakota\u2019s private banks. Instead, it partners with them.<\/p>\n

Morgan is an engaging speaker who is easy to understand, and his presentations have put legislators and community bankers at ease with the concepts. The recorded podcasts (linked above) are well worth a listen.<\/p>\n

The Collateral Obstacle<\/strong><\/p>\n

Other hurdles for public bank advocates are chartering requirements that the BND did not face in 1919. These include FDIC deposit insurance and deposit collateralization of 100% or more \u2013 requirements that actually make no sense for a public bank whose deposits come from the local government that owns it.<\/p>\n

Consider California, which has\u00a0state tax revenues<\/a>\u00a0exceeding $62 billion (down from $92 billion a year ago). These funds must be deposited somewhere. Under current law, any bank holding California public deposits must pledge 110% collateral in the form of Treasuries or agency securities to back them. The rule was designed to protect public money, but it has contributed to the same structural asymmetry noted by Warsh and Bessent.<\/p>\n

Large Wall Street banks can meet collateral requirements easily. They \u201cinsure\u201d their capital\u00a0with interconnected derivatives<\/a>\u00a0backed by collateral that has been \u201crehypothecated\u201d (pledged or re-used several times over). The Financial Stability Board in Basel has\u00a0declared that practice to be risky<\/a>, \u201c[a]s demonstrated by the 2007-09 global financial crisis.\u201d The five largest Wall Street depository banks hold\u00a0$223 trillion in derivatives<\/a>\u00a0\u2014 a risk highlighted by the Bank for International Settlements as \u201chuge, missing and growing<\/a>.\u201d<\/p>\n

But the mega-banks are classified as \u201cSIFIs\u201d \u2013 Systemically Important Financial Institutions; and under the Dodd Frank Act of 2010, a SIFI that goes bankrupt will be recapitalized through \u201cbail-ins,\u201d meaning the banks are to \u201cbail in\u201d or confiscate capital from their creditors, including their \u201csecured\u201d and \u201ccollateralized\u201d depositors. Under the Bankruptcy Act of 2005 and Uniform Commercial Code Secs. 8 and 9, derivative and repo claims have seniority over all others and could easily wipe out all of the capital of a SIFI, including the \u201ccollateralized\u201d deposits of state and local governments. The details are complicated, but the threat is real and imminent. See David Rodgers Webb\u2019s\u00a0The Great Taking<\/em><\/a>, and Chris Martenson\u2019s series drilling down into the obscure legalese of the enabling legislation, concluding\u00a0here<\/a>.<\/p>\n

Main Street banks do not have access to those pools of collateral or to the Fed\u2019s implicit bailout guarantee. As a result, local government deposits tend to flow to the largest banks, while local banks are shut out of the liquidity they need. Main Street credit remains tight, the state\u2019s own money leaves the state economy, and public bank advocates have trouble designing business plans that are cost-effective.<\/p>\n

This is a technical constraint that can be fixed with sufficient political will. North Dakota solved it by backing the BND with the full faith and credit of the state. This makes sense, since the state owns the bank and has ultimate control over the use of its own deposits. The BND does not have or need FDIC insurance, which would cover only $250,000 of its billions in state deposits; and there is no fear of runs, because the state is required by law to keep its deposits in the bank, and in any case it would not run on itself.<\/p>\n

Not just the Bank of North Dakota but North Dakota\u2019s local banks are very safe, aided by the BND with liquidity, capitalization, regulation, loan guarantees, and other banker\u2019s bank services. No local North Dakota banks have been in trouble during this century, but if they were to suffer a bank run, the BND would be there to help.<\/p>\n

The National Infrastructure Bank: A Complementary Solution<\/strong><\/p>\n

Another form of public bank that can rebuild productive capacity is a national infrastructure bank of the sort that powers China\u2019s massive development. Infrastructure \u2013 in transportation, energy, water systems, broadband and public facilities \u2013 is a foundational driver of productivity. A National Infrastructure Bank (NIB) bill,\u00a0HR 5356<\/a>, is currently pending in Congress that would create a $5 trillion infrastructure bank capitalized with existing Treasury bonds. The mechanism is explained\u00a0here<\/a>. It would finance infrastructure at low cost without raising taxes.<\/p>\n

The NIB bill now has 55 sponsors in the House, but they are all from the Democratic side of the aisle. Perhaps the Warsh\/Bessent push for increased productivity will inspire some Republicans to join.<\/p>\n

The Path Forward<\/strong><\/p>\n

If productivity is the cure for inflation, then the United States needs a financial system built to support productive investment. That requires community banks, but the current structure works against them. The Bank of North Dakota shows that a public bank can strengthen local lenders, expand credit, and anchor a resilient state economy. A National Infrastructure Bank can do the same at the federal level.<\/p>\n

Public banks \u2014 local and national \u2014 are not alternatives to the private sector. They are the missing infrastructure that makes the private sector work.<\/p>\n

________________________________________<\/em><\/p>\n

\"\"<\/a> Ellen Brown is a member of the <\/em>TRANSCEND Network for Peace Development Environment<\/a>, an attorney, founder\/chairperson of the\u00a0<\/em>Public Banking Institute<\/a>, and author of thirteen books including\u00a0<\/em>Web of Debt<\/a>,\u00a0The Public Bank Solution<\/a>, and\u00a0<\/em>Banking on the People: Democratizing Money in the Digital Age<\/a>.\u00a0Her articles are at\u00a0<\/em>ellenbrown.com<\/em><\/a><\/p>\n

 <\/p>\n

Go to Original \u2013 ellenbrown.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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