Finance in an Age of Austerity
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Finance in an Age of Austerity

The Power of Customer-owned Banks

Johnston Birchall

This is a book in search of an alternative to the discredited investor-owned banks that have brought the rich countries into crisis and the world economy into a long period of austerity. It finds customer-owned banks – credit unions, co-operative banks, building societies – have hardly been affected by the crisis and continue to operate according to their organisational DNA: low-risk, close to the customer, underpinned by real savings, and still lending to SMEs to protect jobs and local economies. They are big business – in some countries with over 40% of the market – but networked in smaller, democratic societies whose origins go back to 1850s Germany.
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Chapter 4: The evolution of mutual building societies

The Power of Customer-owned Banks

Johnston Birchall


History is messy. The story of cooperative banks is one of continual expansion and change, and it is only complicated by the name change from cooperative bank to credit union half way through. It would be good if we could integrate the history of building societies into this wider history, but there is very little point of contact between them, hence the need for a separate chapter. On the other hand, both cooperative banks and building societies and – where they are strong, credit unions – have evolved into broader banking activities that include mortgage lending for property, so that now the consumer is faced with a variety of customer-owned banks that all offer the same range of services. In order to understand their history we have to make these distinctions, but looking to the future they will be less and less relevant. Before we begin to discuss the provision of mortgage lending it is worth pausing to reflect on why it is needed. In the past (and also the present in low-income countries), people built their own homes using materials that were to hand: stone, thatch, slate, wood and mud.

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