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 8: Some alternatives: savings banks and micro-finance institutions

The Power of Customer-owned Banks

Johnston Birchall


Before we accept at face value the argument put in the last chapter, we need to test it out against a strong counter-argument. The focus on customer-ownership may be misguided; there may be other ways of achieving the same ends that include some but not all of the features of cooperative banks, credit unions and building societies. A recent report by Ayadi and her colleagues (2009) distinguishes between banks that have a single bottom line, focusing on short-term profit at the expense of everything else, and banks that have a dual bottom line, focusing on profit but also on social goals. They do not distinguish between customer-owned and noncustomer owned banks, but between stakeholder rather than shareholder owned banks. There are strong similarities between cooperative banks and savings banks. They are both organised in networks of affiliated, but decentralised, organisations. They are not set up to maximise profit but to provide a service; the customer-owned banks serve their members, the savings banks, the local economy. Thus they are both ‘stakeholder banks’ (Ayadi et al., 2010; Cuevas and Fischer, 2006). How useful is this approach when compared to the customer-ownership approach taken in this book? To find out we have to investigate the savings bank model further. What is a savings bank? It is a business whose primary purpose is to provide a safe place for people’s savings.

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