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 9: Regulation, governance and the need for member participation

The Power of Customer-owned Banks

Johnston Birchall


Banks are regulated; they have to work within a legal and fiscal environment created by government, and are granted powers to do different kinds of banking. The regulator acts on behalf of the public, which includes looking after the interests of customers, but also the wider interest of citizens. Banks are also supervised in order to ensure compliance with the regulation, and also honesty and stability in the system. It can be done by governments if there is no alternative, but is better done by the sector itself, through audit unions and central federations. For self-supervision to become possible, it requires a mature movement that cedes real powers to the centre, that submits to the mutual disciplines of agreed rules and standards, and that contributes towards a mutual insurance fund that can be drawn on if things go wrong. Governance is the running of the business, which can mean either control over day-to-day decisions or strategic decision-making, depending on the level of competence and independence management has reached. Governance provides a strategic direction for the business, a check on managerial powers and representation of member interests. However, it does not guarantee the public interest; that is the job of government. In all but the most atomised of customer-owned banking sectors, governance works on two levels; the group as a whole and the individual primary society. Table 9.1 cross-references five levels of activity with the three types of cooperative sector suggested by Desrochers and Fischer (2005).

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