Co-op’s difficulties should inspire us to nurture banking’s undergrowth
Rather than seeing the rescue of the Co-operative Bank as a setback, politicians should increase efforts to encourage financial diversity
Heather Stewart – The Observer – Saturday, October, 26 2013
Campaigners for co-operative capitalism have an ambivalent relationship with the Co-operative Bank. A year ago, when the ambitious deal to take over more than 600 Lloyds branches looked destined to succeed, it was seen as the symbolic outrider for an entire movement: a test case that would help to prove a co-operative heritage and an ethical outlook were no bar to achieving commercial success in the financial sector.
Last week, when it fell into the hands of hedge funds, they muttered that its status as a public limited company – albeit one wholly owned by the Co-op – meant it was a strange hybrid, instead of a “true” mutual, so its near-collapse held few wider lessons for the sector.
In truth, the reason so much faith was placed in the Co-op – by loyal customers, as well as ideological fellow-travellers – was that there are so few alternatives for anyone who believes there must be a better way of doing things.
Between them, RBS, Lloyds, HSBC and Barclays hold more than 70% of the current account market. And they are all shareholder-owned, profit-seeking enterprises, with global ambitions, lamentable reputations for customer service and a shopping list of fines for mis-selling and other malfeasance. Britain’s banking landscape is a bleak, windswept monoculture.
It’s hard to answer definitively the question of whether a bank’s ownership structure shapes its behavior. Certainly, shareholders have repeatedly shown themselves to be utterly supine in the face of over-aggressive expansion plans, absurdly generous bonus schemes and cavalier financial management. It’s undeniably true that, as the parliamentary commission on banking standards catalogued so damningly earlier this year, the banking plcs that appeared to be the future when a wave of demutualisations swept through the financial sector in the 1990s have not served society, the taxpayer, or Britain’s businesses well.
What’s also clear is that other countries have a far more varied system of banking institutions, whether it’s the many thousands of thriving credit unions in the US, of which about 44% of Americans are members, or the network of Sparkasse savings banks across Germany, where more than two-thirds of banks are local, instead of national.
The coalition has made some moves towards nurturing diversity, including loosening regulations on setting up new banks, and providing taxpayer funding to help credit unions expand; while campaigns such as Move Your Money have helped to highlight the availability of smaller alternatives to the faceless high-street giants.
An increasingly vibrant undergrowth of alternatives to banks, such as crowd funders and peer-to-peer lenders, has also begun to thrive. Far from signalling the demise of an impossible ideal, the death of the Co-op’s ambitions should only encourage ministers, campaigners and consumers to redouble their efforts, and demand better banking.
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