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 6: The performance of customer-owned banks during the crisis

The Power of Customer-owned Banks

Johnston Birchall


How did the banking crisis affect the customer-owned banking sector? There is no magic about the business model. Under the right conditions it can succeed superbly well, but it can also fail. For example, in the Swedish banking crisis of the early 1990s, the cooperative banking sector converted to investor-ownership in order to recapitalise itself (Brunner et al., 2004). In the Spanish banking crisis of the 1980s, the sector suffered the demise of its central bank (Fonteyne, 2007). On the other hand, the Swiss Raiffeisen banks withstood a real estate crisis in the early 1990s better than other banks, the French mutuals suffered less in banking stress during 1980s and 1990s, and before the recent banking crisis the Italian banche popolari and cooperative credit banks had lower loan losses than their competitors (Fonteyne, 2007, p. 26). Immediately after the banking crisis of 2007–08, Lou Hammond-Ketilson and I wrote a report for the International Labour Organisation that found cooperative banks and credit unions had come through remarkably well.

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