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 5: The evolution of banks owned by other types of cooperative

The Power of Customer-owned Banks

Johnston Birchall


Sometimes cooperative banks have been set up as an extension of the work of other types of cooperative. Networks of consumer, worker and producer co-ops have all, at various times and places, developed their own banks. Governments have also seen the benefits of providing credit to cooperative sectors as part of their wider economic policies. Sometimes they have set up state banks to do this, but more often than not they have set up a bank and then given it to a cooperative sector to run. Banks owned by cooperatives tend to be less independent than the cooperative banks and credit unions, and their democratic structures are indirect, but they are still member-owned rather than investor-owned. Like the other customer-owned banks, they have tended to become much more general in purpose, providing a wide range of financial products not just to cooperative businesses but to individuals as well. Seen from below, by customers looking at a bank branch on the high street, they are all quite similar. Seen from above, by someone interested in who owns and controls them, they are quite different. But then there is a further complication, some banks have been demutualising in order to raise more capital and be able to expand the business. In the case of banks owned by a cooperative, the change to investor-ownership creates a hybrid in which the cooperative still owns a substantial part of the business.

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