It is a fact not universally acknowledged that the Co-op Bank never has been itself a Co-op. It was a bank originally owned by the CRS as a way of providing economical banking for their own retail operations.
This was a surprise discovery made after attending a recent lecture by Tony Greenham who looks after ‘new’ banking for the RSA.
Co-operative Banks were illegal up until the Banking Regulations 2014, which themselves were supposed only to update existing legislation. The effect was, intentionally or not, to make cooperative banks legal in the UK. And why not?
In Europe after all, there are 4200 real Co-operative Banks with about 159million customers, of whom a vanishingly small number are in the UK – supposedly the financial specialist of Europe.
The chart below shows the proportions in prominent countries of the world, where the UK Co-operative sector is accounted for only by mutual building Societies, who, lest we should forget, lend only on property and rarely to business. And they are still a small sector when compared with most other countries (click to enlarge):
And this second chart shows how woefully small the local banking sector is in the UK, which is again largely accounted for by Building Societies.
The realisation that Co-op banking is now legal has given a boost to the prospect of local banking enabling a structure that is simpler than the charitable trust model constructed by Professor Richard Werner before the regulations were revised.
New UK Co-operative Banks would have shares that would be tradable only between bank members. To avoid takeovers shareholders would have the right, as members, to one vote regardless of their actual shareholding. (Membership would be made up of shareholders as well as savers, borrowers, customers and current account holders.) This would accommodate local authorities as well as individuals or businesses, who can all buy a £15 share and have one vote, and would in turn get around the difficulty where local authorities have effective control.
I should admit that, although I was originally in favour of some local authority control, this was before I realised that the Co-operative model was possible and the difficulties that local authority control can engender. They are probably worth recounting as they are so trivial – but true.
Bournemouth Bank was a banking pilot wholly owned by the local authority. It lent money to a local fancy dress shop. Towards Halloween their shop window was so alluringly effective that numerous small children burst into tears when they saw it. Councillors were contacted and, horror upon horror! it was found that the local authority’s bank was actually lending money to the shopkeeper. The Councillors deemed that the loan should be called in. The Bournemouth Bank is no more – and all because of a window display.
Meanwhile the Co-operative banking structure could change the game for local banks as there is scope, through the mutual principle, for sharing back office functions, much as the German Sparkassen are wont to do. As bank regulation is designed for the world sized, corrupt banks it is mighty complicated and software is expensive. This aspect recently did for the Airdrie Savings Bank, Britain’s sole surviving Savings Bank, whose individually bespoke software was prohibitively pricey to alter for just four branches. At least two of their directors are active in the Community Savings Bank Association which is now promoting Co-operative Banking.
Here there is already an off the shelf banking sytem provided and maintained by a subsidiary of Tata Steel, a Mastercard deal which is infinitely cheaper than Airdrie savings bank could acheive on its own and a plan to have physical branches so the staff will handle cash, be part of the local community and really know their customers. Everyone thinks internet banking is the way ahead but that is an incomplete vision. The mainstream banks look mostly at credit reports and not at the customer. Many people will find it difficult to build up the right record for setting up a business through a credit report. Local knowledge of the individual is vital for proper entrepeneurial consent. How many local – and eventually wider – opportunities are lost to the UK because our world ‘local’ banks work on algorithms from head office?
The Community Savings Bank Association reckon that each bank needs to service a population of about three million people, which means there is scope for about 18-20 local banks. Local authorities would be asked to put in £20million – ‘only three miles of dual carriageway’ and they estimate break even by year four and a return of 7 – 8% in year five.
Local banking is desperately needed whoever forms the next government. It is not only local employment, it is employment for locals. It is local decision making and local responsibilty. Above all it will influence local democracy.
So not what is done nationally to us but what locally we do.
Figure 10 below (click to enlarge) shows just how skewed in favour of London the UK’s economic activity was in 2008, in stark contrast to our European neighbours. I don’t think anyone is suggesting it has altered since. Local co-op banking will help to devolve control.
Additionally – and perhaps surprisingly – evidence suggests that UBS behaves differently in the UK compared with Switzerland – just as a result of the competition. If the cooperative and local principle can flourish in UK banking then it should also begin to change the way our mainstream, wonderful world ‘local’ banks work.
That alone would be an achievement.
Updated 6 June 17 after advice from Tony Greenham, to give a more accurate description of the actual structure of a Co-operative Bank.