Thursday, 21 November 2013

The Bank of Our Friends in the North

First, a bit of transparency is required. I’m a customer of the Co-operative Bank, and I’ve been irritated with them for ages – long before they imploded – mainly because (silly, I know) of their habit of sending me bank statements with one or two transactions on.

The reason I stay with them, despite the recent revelations, is because the Save Our Bank campaign has told me to wait and see – and I see the logic in that – and also because of their excellent, friendly and effective call centre, which is no small thing.

I promised I would leave the Co-op if the hedge fund deal went through, so I will still leave if they renege on any ethical positions – or if they dump the call centre. The hedge funds need to be kept up to the mark.

But I am also aware, as Lord Myners said yesterday, that the hedge funds are not completely committed either and could pull out if there was a mass walk-out by customers. It looks like Mutually Assured Destruction to me (if only Vince Cable had threatened to veto the name before negotiations with the hedge funds).

What is fascinating about the revelations about their chairman, the Rev. Mr. Paul Flowers, is not how unusual it is but how much it brings the failures at the Co-op into line with the other big banks.

The big banks also had key appointments without enough banking experience (HBOS). They also succumbed to disastrous mergers with rapidly disintegrating loan books (RBS).

It just goes to show, as the Guardian said today, that the Co-op is not in trouble because it is a mutual, but because it is a bank.

What underlies this very public witch-hunt against Mr Flowers is that he was a political appointee, and this is what terrifies the financial establishment about local banking. They are afraid of bankers appointed because of years of service to the Labour Party in some one-party fiefdom, lending public money out to approved vanity projects.

They are afraid of the emergence of the Bank of Our Friends in the North.

But again, the scandal is not about small banks, it is about the hopeless regulation of big banks.

The truth is that most other countries, in Europe and North America, have local banks that underpin their local economies.  They also have banks that are linked in some way to local government.

We have new banks along these lines in Cambridgeshire and Salford, with more on the way, using local assets, pension funds and deposits to support productive business - just as the big banks seem to have lost their ability to do so.

Their track record across Europe is not blameless, but those networks of local banks which rode out the recent banking storm without investing in dodgy bonds or turning to much attention to the global markets - sticking to their core skills – have provided a secure basis for those economies locally which we lack.

Because the truth is that there is a kind of snobbery about the way we have done banking regulation. It allowed the big banks to do pretty much anything they could finesse, but traditionally strangled the small and local banks before they could launch.

And all for fear of the Bank of Our Friends in the North, when all the time political appointees were staring them in the face.

The Guardian also lists some of the facts about the rise of the mutual sector:
  • One new co-operative formed every working day of the week.
  • Over six thousand co-operatives in all.
  • In banking, one million people are now members of credit unions, which are financial co-operatives
  • Two thirds of farmers in Scotland are now part of agricultural co-operatives, creating a commercially very highly successful sector.
In short, it is big banks that are in crisis, not the growing mutual sector that is able to achieve things that conventional business can't.

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