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 12: Conclusion: a cooperative counter-narrative

The Power of Customer-owned Banks

Johnston Birchall


There are several prescriptions for putting right a banking system that has proved itself unfit for purpose. After the banking crisis of 2008, the first thing the regulators did was to tighten their rules so that banks have to hold more capital to cover potential losses. There were calls to break up the big banks described as ‘too big to fail’ and to separate out investment banking from commercial and retail banking, but these have stalled against resistance from the banks. After bankers began to divert public bailout money into massive bonuses, there were calls to change the incentive structure so that they would only be rewarded for longer-term success. As Vince Cable put it, ‘Bank managers would be incentivised to be reliable, predictable and boring’ (2010, p. 193). This is being done and the bankers’ behaviour is changing as a result, though not as much as the public would like. Another round of bank failures and bailouts within the European Union led to a plan to allow banks to fail in the future; the costs would fall on equity and bondholders rather than on taxpayers, and an explicit resolution regime would make the process orderly and predictable. A new tax on banking transactions is proposed that will recoup some of the losses to the taxpayer and build up a fund against future losses. Alternatively, an insurance scheme would do the same job by creating a rescue fund (Llewellyn, 2010).

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