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Generating $66 Billion / year through Narrow Community Banks to use for local projects.

A plan is herewith presented whereby local governments will start 4,000 Narrow, State-Chartered, Community Banks and specialize in giving 4% mortgage loans.

Introduction to a plan for “The Establishment of Community Banks by Local Government”. 4/23/09

A plan is herewith presented whereby local governments will start Narrow, State-Chartered, Community Banks and specialize in giving 4% mortgage loans.

Banking (like wars) is one of the few things the people can’t efficiently do on their own.

Please note: this plan does not have to be implemented all-at-once. It can be started with one trial bank. How about starting it at one bank in Washington D.C.?

A glossary follows the plan — it is intended to define all the words that may be new to the reader.

An introductory note of historical importance that emphasizes the importance and power of leverage.
   … “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” … Archimedes  / (this plan uses the leverage inherent in Fractional Reserve Banking)

GOALS — The goals of this plan are to solve our current Home Mortgage, Money and Banking problems by providing 4% home mortgages to the American Public

ABSTRACT — Give communities a State-chartered Narrow Bank operating under existing law, including Fractional Reserve Banking and a place to sit and they will create all the money this country can use to support affordable housing through 4% mortgage loans.

The Community Banking Plan — How to easily solve our Home Mortgage, Money and Banking problems

   1. This plan provides for the establishment of 4,000 Community banks (Bank) — one in each community-area of about 75,000 people. Each Bank will sign a contract with the State for a State Charter that will spell out, in detail, what that Bank will be doing. For the most part, at the beginning of this program all Banks will focus on placing 4% / 30-year mortgages on single-family, owner-occupied homes wherein the owners have put down 20% of the purchase price as a down payment and have sufficient verified income such that the mortgage payment will not exceed a to-be determined percentage of that verified income (probably between 20 and 30%).
   2. All levels of government will be involved in this plan in a very simple arrangement that will thereby serve to naturally provide the checks and balances that are inherent in the Constitution. Those checks and balances are missing from our existing banking system that is essentially run by the Federal Reserve System that is outside any of the branches of government established by the Constitution.
   3. Participants in the new Money and Banking system and what they will do:
(a) Legislative Branch of the Federal Government: Will pass laws telling how the money and banking system will operate
(b) Executive Branch of the Federal Government: Will manage the money and banking system in accordance with laws passed by Congress.
(c) The Federal Reserve System: Will be put into the Executive Branch of the Federal Government and which will work in concert with the Treasury Department of the Executive Branch and be renamed
“The United States Third Millennium Central Bank”.
  (d) The 50 States: Will, in contractual agreements with Local Governments, set the terms of the charters which will specify, for each bank, which specific duties the Community Banks will perform and the rules under which the banks will operate.
(e) Local Governments: Will manage the Community Banks with government employees who will work only for the banks.
   4. It is anticipated that at some future date, this program might be expanded to cover other low-risk loans such as inventory loans and farm loans to common people and small businesses.
   5. Banks will be extremely narrow — no deposits will be accepted. That will cut overhead to an absolute minimum.
   6. There are 50 million owner-occupied homes in the U. S. A.                                     
   7. There are 300 million people in the country.
   8. 20 million homes will be covered by these 4% mortgage loans.
   9. There will be 4,000 banks — one for every community-area of 75,000 people.

  10. The loans will cover only owner-occupied homes.
  11. Owners must have a 20% down payment.
  12. Mortgage payments must not exceed xx% (xx to be filled in later) of family income from all sources.
  13. The average loan on each home will be $100,000.
  14. Each Bank will issue and hold 5,000 mortgages. A total of $500 million / Bank.
  15. Assume $50 million capital for each bank. This can come from any source, preferably local people. Investors will be given a 6% return (dividend) on their investment. That will result in a dividend payout of $3 million / year. That will reduce bank profit to $16.5 million / year. If the $50 million can’t be raised easily, the money can be advanced by the Central Bank and paid back at the rate of 6% / year
  16. INCOME PER LOAN — For each Bank, there will be a Bank income of $4,000 / year on mortgage income per home.
  17. TOTAL INCOME PER BANK — Each bank’s mortgage income will therefore be $20 million / year. (5,000 mortgages — each returning $4,000 / year).
  18. Each Bank will operate with 4 employees.
  19. Bank payroll will average $80,000 / year per employee. Maximum amount per employee — $100,000. Minimum — $60,000
  20. Total payroll will be $320,000 / bank / year. (#18 times #19)
  21. Insurance, overhead and whatever / employee will be 50% of pay. That will add to $160,000 / bank / year.
  22. Floor space will be 400 square feet / bank. Can be in any existing government facility.
  23. Rent, utilities and overhead will be $12.50 / per square foot / year or $5,000 / bank / year.
  24. Total expenses / bank / year will be:
      (a) Employees — $320,000 (from #20) + $160,000 (from #21) or $480,000 total.
      (b) Space — $5,000 / year (from #23)
      (c) Total — $485,000 / year — adding (a) & (b) — round to $500,000
  25. Profit / bank / year —
      (a) Income –$20 million (from #17)
      (b) (minus) Expenses — $1/2 million (from # 24c)
      (c) (minus) Dividends — $3 million (from #15)
      (c) Total profit / yr. — $16.5 million. That is 33% on invested capital of $50 million (see #15).
  26. Total profit for entire system of 4,000 banks — $66 billion / year.
  27. That is $66 billion / year net income total for all 20 million home loans.
  28. That profit can be spent by each community for any general common good spelled out in the Bank’s Charter.

29. GLOSSARY STARTS HERE — we believe the following glossary defines all the terms in this plan that might not be familiar to the reader.

29.1 State-chartered bank — “A bank that is operating under a State Charter”. Most banks in the United States are operating under a State Charter.

29.2 Charter — “A written document, issued by the State, by which an institution such as a bank is created and its rights and privileges defined. A State license (or charter) gives the holder(s) the right to open a bank in accordance with the terms of the charter”.

All charters should be considered contracts and should be covered by standard contract law.

29.3 Reserve Rule — “The State or Federal rule that specifies the percentage of loans a bank must keep in reserve”. See Section 19(b) – (2) – (of the FEDERAL RESERVE ACT) where the following is written “ RESERVE REQUIREMENTS.– (A) Each depository institution shall maintain reserves against its transaction accounts as the Board may prescribe by regulation solely for the purpose of implementing monetary policy– (1) a ratio of not greater than 3 percent (and which may be zero) in [sic] for that portion of its total transaction accounts of $25,000,000 or less … “
See > Under a 10% reserve rule, a bank with One Million dollars in capital can lend $10,000,000. Under a 0% rule, a bank with $1 in capital can also lend $10,000,000. This might seem strange — but careful analysis had led us to believe that it is perfectly safe for the system. The charter should carefully consider this and make sure the charter wording is clear on this issue. It will come into play if a loan goes bad.

29.4 Narrow Charter — “A charter that restricts the allowed bank services to a very few, tightly controlled services”. We are specifically suggesting that we focus on banks that will be making 4% home loans.

29.5 Transaction account — An account that records a bank’s deposits on the bank’s books. The following is from Section 19(b) – (1) – (C) – (of the FEDERAL RESERVE ACT). “The term ‘transaction account’ means a deposit or account on which the depositor or account holder is permitted to make withdrawals … or transfers to third persons … . ”

29.6 Reserves — FORM OF RESERVES (following the URL at #4.3 above) SEC. 19(c)(1) “Reserves … shall … be in the form of — balances maintained for such purposes by such [bank] in the Federal Reserve bank of which it is a member … except that (i) the Board may,… permit [banks] to maintain … their required reserves in the form of vault cash … .”

29.7 Vault cash — “Currency that is held by banks and is stored overnight in their vaults in order to meet the business needs of the bank”. Presumably in today’s banks, any electronic record of dollars controlled by the bank is the equivalent of “vault cash”. It does not seem to make sense that the term “vault cash” is restricted to actual dollar bills or physical money (currency). Definition from

29.8 Depository institution — A financial intermediary that accepts savings and/or demand deposits from the general public. In common, plain English, we take “depository institution” to mean “a bank”.

————– end of Glossary ———               ———— end of plan —————

A)    Your comments, help and advice are welcome — please tell me what you think.
B)    Do you approve of this plan? Can we list you as approving this plan?
C)    My wife Gladys and I plan to travel to Washington and hand-deliver this plan and some other related material to each member of both Congressional Banking Committees in May of 2009.
D)    Do any of you know your way around Washington? Can you offer us any advice?

Martin R. Carbone / 5123 Don Rodolfo Drive / Carlsbad, CA 92010 / Tel: 760-603-1910 / website:

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