Those on the progressive side of economics are used to playing the long game when it comes to reforms. That patience may be a vital tool for new models of local economies to flourish
It was 16 years after lone Catholic Priest, José María Arizmendiarrieta, arrived in the Basque region of Spain before he started the credit union that would become the financial cornerstone of the Mondragon Corporation, a federation of over one hundred co-operative businesses.
Laboral Kutxa is a co-operative itself and must prioritise the needs of it’s two and a half thousand worker-owners by law. It is the third-largest ‘bank’ in the region with over 1 million customers. Committed customers can also become member owners by paying a membership fee of 2000 euros. Its raison d’etre is not only to underwrite the financial development and sustainability of the co-ops in the Mondragon federation but also to protect the wider wellbeing of the worker-owners in the region.
On the other hand, the banking system in the UK is dominated by few giants that serve extractive wealth with little loyalty to anyone else than their global shareholders. This was aided by financial reforms that lead to the majority of building societies being demutualised through the 1990’s, which meant they converted from a democratic customer ownership into conventional investor owned structure. Spearheaded by Northern Rock, all the building societies that chose to demutualise have disappeared by now.
Meanwhile, the credit unions, which are also consumer-owned cooperatives have doubled their membership since 2012 and have reached a record two million members. They are also consumer-owned cooperatives, but unlike building societies are not specialised solely to mortgage lending. It might also be worth mentioning that despite its name, the Co-op Bank was never actually a cooperative, but a bank owned by cooperatives.
However, both credit unions and building societies are restricted in their activities compared to conventional banks, especially when it comes to lending to businesses. Fortunately, a new wave of regional, cooperative banks in the UK is borne out of similar needs. Endeavours such as Avon Mutual, South-West Mutual, Banc Cambria, North-West Mutual and the Hampshire Community Bank will be financial institutions dedicated to serving small and medium sized enterprises, social enterprises and co-ops, on specific geographical footprints; rather than all-consuming, profit-chasing, national and multinational corporations whose low risk, overly selective lending restricts opportunities for local inclusive growth. Unlike Laboral Kutxa however, these are owned by the customers as opposed to the employees of the bank.
This can be a welcomed change to the British economy, as cooperative banks have been shown to bring stability and widespread prosperity. For example, during the 2008 financial crisis, cooperative banks in Japan, EU and the US proved to be much more stable and either continued or even expanded lending to small and medium sized businesses as the rest of the banking sector started withdrawing. One testimony to their success is the fact that while half of all German banks are cooperatives, not a single one has gone bankrupt or insolvent in 80 years.
They are overrepresented in lending to small and medium sized businesses in practically every European country. Nowhere is this overrepresentation more true than in Greece, where the cooperative banks market share of all lending is only around 1%, but they account for 18% of all lending to small and medium sized businesses.
Regional banks with a co-operative structure could provide much needed competition in funding the small and medium sized businesses that are often unsatisfied with the treatment they face from the dominating big four banks. They could also help realise the promise of community wealth building as a solution to wealth agglomeration and climate disaster. Starting a bank in the UK however is a tortuous process and requires the patience of a saint, or at least that of a Basque region Catholic Priest.
Some of the existing vehicles for the new UK regional banks have been in existence, at least as a concept, since 2014. Most of them are pursuing member-owned co-op models although Hampshire Community Bank is charitable.
They are all at various stages in the process which involves forming whatever company vehicle is preferred, employing or electing Chairs and shadow boards, pre-application challenges and business planning with the Bank of England; followed by the full application for a banking licence, ‘mobilisation’ of the operation and final authorisation (under supervision) from the financial authorities.
Much of the early days of these fledgling banks have been led by enthusiastic individuals with lengthy banking experience who are frustrated with the current UK financial system. Initial investors are mostly anchor institutions; councils & universities – but again, each vehicle has various amounts of funding pledged, from almost nothing to ten million pounds plus.
There is a strong chance that some won’t stay the distance, not least because of the time lapse. Priorities shift, the political and senior management continuity among the organisations involved cannot be guaranteed. Whether one is an advocate or a critic of capitalism, making it easier for people to voluntarily form institutions like cooperative banks
Necessity however, is a major driver. Wealth inequality, climate disaster and extensive state intervention due to Covid-19 has exposed the fragility of global market capitalism. The dream of a network of regional co-operative banks covering the UK, financing the SME’s and co-ops excluded from mainstream borrowing, replacing extractive wealth with community wealth, is still in the ether; but the fightback must be financed and Mondragon wasn’t built in a day.