The recent fine of JP Morgan Chase is a little encouraging, but really just the tip of an outrageous iceberg. In fact, business as usual continues because the Corporate Executive business model remains unchanged. Since the Rochdale Co-op of the 1800s and Raiffeisen's credit unions a little later, Europe's Co-op Banks have gotten more than 20% market share in some areas and were less affected by the crisis. In the US, the credit unions also fared better. While I was a longtime Food Co-op member in NYC, I was only beginning to look into credit unions when I moved to Latin America. There are a few projects here, and around the world, as the World Council of Credit Unions and the International Co-op Allia. indicate...... As for theories, of course, Mark Lutz gives a great account in his Economics for the Common Good, including giants like Ellerman and Daly, although J Vanek might require another source. Ann Milford has made a recent advance in discussing Fair Trade, while J Birchall and J Rothschild have works which provide excellent historical perspectives. Marjorie Kelly's recent work Owning Our Future accomplishes an excellent view including both social and ecological perspectives.
b) actually, the fine is only $6 billion, which indicates that it was inflated unknowingly by the media....
Elisa
Bevilacqua - 06 June 2012
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Co-operative banks have proven resilient and
sustainable. Post-crisis financial regulation and reform must
recognise the sector’s rich diversity
Co-operative
banks form decentralised networks that are subject to both banking
and co-operative legislation. They play an important role in Europe
and in the global banking industry. They serve 180 million customers
mainly households, SMEs and local communities and have a market
share of about 20 per cent in Europe. In some European countries,
like in France, Austria, the Netherlands, Germany, Finland or Italy
the market share ranges between 20% and 60%. Co-operative banks
employ 750,000 people and have more than 50 million members across
Europe. Furthermore, 1 in 3 Small and Medium Enterprises is serviced
by a co-operative bank.
These figures demonstrate the power
of cooperative banking and the contemporary form of its business,
which brings prosperity in both industrialised and developing
countries. For co-operative banks historically created to improve
access to finance for their co-operative members, who would have
otherwise had limited access to financial services based on
reasonable conditions, this remains a key objective.
Indeed
the history of many co-operative banks can be traced back to the
financial exclusion faced by many communities in the 19th century.
Most co-operative banks were established following the ideas of
Schulze-Delitzsch and Raiffeisen to offer opportunities to rural
communities and small businesses that would have otherwise remained
unserved. In economic terms co-operative banks were established to
address market failures: the members were owning and financing the
institutions, taking part in decision making. The community
monitoring and relationships offered the necessary incentives to
ensure timely repayments of loans and allowed co-operative banks to
flourish and become the banks of today.
In short the
co-operative banking model was an innovative answer to unequal
access to financial services and the principle of mutualisation was
a means to emancipating people from economic, social and even
political dependency through self-reliance and solidarity. While
evolution of the structures and national legislative frameworks and
traditions have differed in the different EU countries, this basic
set of values and characteristics still holds true.
In
particular the key distinguishing factor of member ownership is a
common and defining feature. The local banks are effectively owned
and controlled by the local customers through membership. The local
banks in turn own and control the supporting infrastructures,
regardless the number of tiers, roles and authorities delegated to
them.
As co-operative banks networks are established at
local level, they are fully integrated in their immediate
environments. This feature of proximity means that the credits
collected are reinvested at the local and regional level and as a
result the co-operative banks play a key role in development of
areas in which they are based. In other words the decisions in
co-operative banks are taken at local level and granted to local
projects from the member/owners. “This reflects the primary banks’
awareness of their social and economic responsibility in their
respective local communities and it is in line with the co-operative
principle: from the local community and for the local community.”
1
In this respect co-operative banks have continuously promoted
entrepreneurship through fostering self-help, responsibility,
co-operation and solidarity while emphasising the common good of the
communities they belong to.
Proximity: improving
access to financial services and fostering regional
development
With 65, 000 branches in the EU-27,
co-operative banks provide EU-wide coverage, from the inner cities
up to the most remote areas and villages. They provide access to
finance for customers in regions that would typically not be served
by other players of the credit sector due to decisions based on the
profitability criteria alone.
The market share of
co-operative banks in rural areas ranges from approximately 41% in
Germany to up to 85% in France (3 co-operative banks groups
combined). In most European countries, including France, Portugal,
Italy, Spain, UK, Austria, the Netherlands, Greece, France and
Finland, co-operative banks are often the only financial
institutions present in areas that are considered remote.
The
inclusive role of co-operative banks has been illustrated in
literature, a study of 2005 examines the consequence of historical
presence of local co-operative banks on long-term growth (data from
1970 to 1993) and finds that the size of the total financial sector
has little impact on regional growth, while the presence of
co-operative banks is crucial.
2 The
authors argue that the less complex and smaller co-operative banks,
with high knowledge of the local community are more suitable for
providing funding for locally based businesses, than large financial
institutions owned by a vast number of shareholders. On account of
their proximity to the members and their local establishment,
co-operative banks are well placed to gather more comprehensive
information that allows for better evaluation of the needs of
customers and their solvency. For example, processing soft
information on borrowers, reducing information asymmetries and
lowering moral hazard and adverse selection.
Recent research
conducted by the CEPS (Center for European Co-operative Studies) in
2010 across 7 EU countries has demonstrated the contributions of
co-operative banks in fostering local growth.
3
The research confirmed that the regional presence of co-operative
banks has a positive impact on regional growth and GDP. Moreover in
some countries like Austria and the Netherlands co-operative banks
appeared to play a stabilising role through maintaining their
presence in regions that experience slow growth and therefore
contributing to future economic recovery.
Resilience:
contributing to the stability of the financial systems
The
member-customers are fully involved in the decision-making process
of co-operative banks. Apart from allowing for risk minimisation,
creditworthiness and customer need identification, member control is
key to a long-term vision. Unlike other companies quoted on the
stock exchange, co-operative banks are not subject to the volatility
of financial markets. Their primary aim is the long-term
relationship with customers/members and members value maximisation.
The continuous increase of profits is not a goal per se. Thanks to
this long-term approach ─ high level of capitalisation, stable
incomes from retail business, a diversified credit portfolio and
prudent risk management ─ co-operative banks demonstrated their
resilience during the recent financial crisis and weathered the
storm relatively well. The stabilising role of co-operative banks
was illustrated in a recent study of the IMF and acknowledged by
several commentators and policymakers, including EU and
International institutions. They underlined the continuous support
of co-operatives to local economy and small businesses also during
the turmoil.
Towards an enabling regulatory
environment
Thanks to their co-operative features
and structure, co-operative banks are resilient and sustainable;
they are an asset for stability and for providing accessible and
inclusive financial services. As recently declared by the Secretary
General for the United Nations, Mr Ban Ki Moon: “Cooperatives are
a reminder to the international community that it is possible to
pursue both economic viability and social responsibility.” However
an enabling regulatory framework that fully takes into account the
diversity of banking models in Europe is fundamental to be able to
continue playing their crucial role.
One of the lessons
drawn from the sub-prime mortgage and financial crises is the
importance of diversity in the banking industry. Although still
difficult to apply in practice, several commentators, public
authorities and international organisations have
fully
acknowledged that "just as an ecosystem benefits from
diversity, so the world is better off with a multitude of corporate
forms."
Several researchers at European level (Lwellyn,
Ayadi, Ferri, Kalmi et al.) have recently stated the powerful
systemic benefits to be derived from diversity of business models
and ownership structures in the banking sector. In short a
pluralistic approach is likely to ensure greater financial stability
and growth, as it responds to different objectives and business
purposes.
Despite these recognitions, the recent banking
reforms and the post-crisis financial regulation show that
legislation at international and European levels is conceived on the
basis of the mainstream shareholders banks model (with high level of
sophistication) and does not take properly into account the
diversity and characteristics of the other models. If diversity has
to be translated into practice, a cautious approach must be taken by
the legislator to avoid a detrimental one-size fits all approach
that might hamper growth and local communities.
Elisa
Bevilacqua is head of research and communications at the European
Association of Co-operative banks
1
Androniki Katarachia, “Social responsibility and customer
satisfaction in cooperative banking”, 2nd International CIRIEC
research conference (2009)
2 Usai, S and Vannini M., “Banking
structure and regional economic growth: lessons from Italy”,
Annals of Regional
Science (2005)
3 Ayadi R., Llewellyn D.,
Schmidt R. et alt, “Investigating Diversity in the Banking Sector
in Europe, Key developments, performance and role of cooperative
banks”, CEPS (2010)
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