After the imprudent and possibly illegal behavior of America's largest banks sent the nation into a deep recession and necessitated a massive bailout at taxpayers' expense, Wall Street firms have rebounded nicely. In the first quarter of 2010, JPMorgan Chase, Bank of America, and CitiGroup have all posted sizeable profits.

The same can't be said for many businesses on the South Side of Chicago, where financing is hard to come by and unemployment is staggeringly high. Residents fighting for their homes aren't getting much assistance either, as banks spend more of their time fighting sensible foreclosure prevention bills than refinancing home loans. "A lot of people are angry and upset," said Rep. Mary Flowers (D-Chicago) in an interview last week. "The people of the state don't feel like we've gotten much of anything out of the deal."

Responding to the frustration in her district, which covers chunks of the city's Southwest Side, Flowers recently asked the General Assembly's Legislative Research Unit to explore ways in which the state could simultaneously spur lending and lessen its reliance on the bloated financial sector.  The result: House Bill 5476, legislation to establish the Community Bank of Illinois.

The idea is modeled after the Bank of North Dakota (BND) the only state-run bank in America and one that has been operating successfully since 1919.   The institution has a seven-member advisory board, 168 full-time employees, and is regulated by the state's Industrial Commission.  While it offers few retail options, it does extend low-interest loans to students, farmers, and small businesses often overlooked by traditional banks. The BND also provides liquidity to other financial institutions in the state and enables "participation loans" (in which it originates the loan while a partnering bank contributes funds and shares in the risk and profits).

Further, the BND runs innovative loan funds -- generating funding for community water projects, facilities for the disabled, and electronic health records. Even more intriguing, the bank has earned $350 million in profits since 1997, all of which has been deposited back into state’s general revenue fund. (Currently, when Illinois earns interest on its portfolio, half is sent into the general fund while the other half is reinvested).  Finally, having its own bank saves North Dakota on costly financial service fees.

Economic experts cite the BND as one reason why the state was able to weather the recession and this has prompted similar proposals from state legislatures in both Washington and Michigan.  (Illinois Green Party gubernatorial nominee Rich Whitney has included the idea in his economic platform, as well.) Michael Moore profiled the success of the bank in his latest documentary, "Capitalism: A Love Story." Watch a brief clip:

As written, HB 5476 would require that all of the state's $8 billion in agency funds (not including those for universities) be deposited into the bank. But there's a catch: the Community Bank of Illinois -- like the BND -- would not be a member of the Federal Deposit Insurance Company.  Therefore, the state would have to guarantee all deposits.  According to a fiscal note applied to HB 5476 by the treasurer's office, any state-run bank would need a 10 percent capitalization rate to safely do so. That means the General Assembly would need to raise $800 million up front, along with some administrative costs, to make the bank functional.

Obviously, that pricetag is far too steep given the state's ongoing budget crisis. But that's not to say that the bill couldn't be amended to redirect a portion of state funds -- something like $2 billion -- into the public institution. When asked about this possible scenario, the treasurer's office pointed out that the state would then be paying duplicate administrative costs.  Nonetheless, the capital requirement would be considerably lower, allowing the bank to get at least get rolling.  As Flowers said last week, "We have to begin some place."

In early March, Democratic lawmakers -- skittish about growing anti-bank sentiment -- passed HB 5476 out of the Consumer Protection Committee on an 8-5 vote. It's now facing an April 30 deadline for action on the House floor.

It very well may not advance further before the session ends, as bankers have flooded Flowers' office in protest. But in the age of bailouts and "jobless recoveries," it's an idea that at least deserves open discussion.  Think of it as a banking "public option."