To the dismay of its long-suffering customers and supporters, in February 2017, the Co-operative Bank put itself up for sale, four years after its disastrous near-collapse.
The news was disappointing for customers because – in addition to hoping that the bank would maintain its world-leading ethical investment policy – many hoped that it was possible that the bank would one day be returned to majority co-operative ownership. Those of us involved and committed to the co-operative movement hold firmly that the co-operative model provides the most effective answer to the ruthless nature of the wider banking sector – indeed we believe that the more co-operatives there are in general, the more equitable our society. Banking – and the casino banks we mostly nurture in the UK economy – are currently fuelling rather than addressing widening inequality in our society, they fund the industries which destroy and undermine sustainable, democratic communities. Even an imperfect alternative is still an alternative.
Regrettably the only co-operative involvement that remains in the bank that bears the movement’s name is a 20% stake owned by the Co-operative Group, and if the sale is successful, this final minority stake will be relinquished. In this event, it looks unlikely that the bank could continue to use the co-operative name – but a more pressing concern is that it could abandon entirely any remaining semblance of community endeavour, such as the hugely successful Hive co-operative support programme.
As it is, these concerns may end up being the least of our worries. It looks unlikely that a buyer will be found whilst uncertainties in the economy and low interest rates continue to batter the banking sector. Very few larger banks are looking to take on an injured competitor in the current climate.
If this is indeed the case, the bank has spelled out that it would need to find around £750m in additional funding to survive as a going concern, and there looms large the possibility that our beloved 250-year old institution could be wound up by regulators. This is why we need a radical plan to rescue the bank, and bring it a little closer to its original co-operative principles.
A radical solution: Co-operation.
Across continental Europe, over 20% of financial institutions are mutually owned and controlled. In France, the banking group BPCE – France’s second largest – draws together 17 regional Banques Populaires, two specialist national lenders, as well as 17 small savings banks. In Germany, the Bundesverband der Deutschen Volksbanken und Raiffeisenbanken – the BVR – is the fourth largest banking institution, run as a federation of 1,000 democratically controlled local banks. Customers can invest up to €2000, and receive interest on their investment.
In short – these banks are true co-operatives.
The co-operative movement started in the UK – the British co-operative movement is thriving – over 17m members own and invest in over 7,000 co-operative enterprises. We already have models of how to successfully run a mutual, democratic organisation.
There are endless success stories for us to choose from, but let’s look at just one – the Phone Co-op, a growing provider of fixed-line, broadband and mobile phone services. The Phone Co-op’s success can be attributed in no small part to its active and involved membership base. As a result it has access to a large pool of member capital, and allows its members to invest up to £100,000 each, gaining interest on their investment in line with the profitability of their co-op. Average investment in the Phone Co-op stood at £403 per member in 2013 – it is probably higher than that now.
Now let’s stop for a moment and think again about the Bank. We know that the Bank’s customers – nearly all 4 million of them – are famously loyal, even in the face of adversity. They are active, engaged and co-operative members of society. They value the bank’s ethics and ethos above all else. If they were able to get directly involved, democratically and financially, in the running of the bank, I think it is a fairly safe bet that they would. If those 4 million customers invested at around the same level we have seen in the Phone Co-op – £400 each, then the bank would have access to £1.6bn of capital instantly. Anecdotally, some customers of the bank have intimated to me that they might be willing to invest up to £1,000 in a bank they continue to believe in, provided they have a democratic say in how the bank is run. What we need to do now is work out how that could happen.
Is it possible for a UK bank to be a true co-operative?
Many of the criticisms of the Co-operative bank throughout its recent history have centred on the fact that the Co-operative Bank plc is just that – a plc, rather than a ‘true’ co-operative. Whilst this is true, it isn’t nearly as sinister as some people make out. The bank was ‘truly’ mutual for most of its history from 1872, but the banking assets of the CWS were transferred to the Co-operative Bank Ltd under the auspices of the Co-operative Bank Act (1971). This, in turn, came about as a result of the Industrial and Provident Societies Act (1965) – The Co-operative Group is registered as an IPS of course, but the bank could not use an IPS structure with withdrawable share capital. An IPS with withdrawable share capital is prohibited from operating as a bank. As such, it is not currently possible under British co-operative law for a bank to be a true co-operative. There are, of course, many mutually owned savings products available in the market, as well as privately-owned ‘ethical’ banks such as Triodos. Neither satisfy our goal of a true democratically controlled, mutual bank.
The difference between a ‘true’ co-operative and a plc owned and controlled by a co-operative could, for all intents and purposes, be nothing more than semantic, if the ‘parent’ co-operative put in place safeguards to ensure that the bank is run co-operatively – for example, allowing direct member control and investment in their own bank. Unfortunately, this is something that the Co-operative Group failed to do throughout the bank’s history. Group members were not able to vote on issues which exclusively pertained to the Bank, and the Bank’s board were selected – often rather badly – by the Board of the Group. In addition, the Group does not currently allow members to invest more than £1 for membership, which prevented Bank customers from investing in their own bank, in the spirit of a ‘real’ co-operative bank. This was a failure of the Group’s running of the bank, not necessarily a failure of the rules pertaining to co-operative banks in the UK.
A future co-operatively owned Co-operative Bank must have a much more democratic structure, in which Bank customers have a direct say in the running and affairs of the bank. It is also crucial that a future Co-operative Bank has access to member investment capital.
On account of the bank’s plc structure, and the fact that it is not a co-operative under IPS laws, it is not able to raise funds in quite the same way as the co-operatives we mentioned earlier, including the Phone Co-op. Nonetheless, if the bank’s ‘controlling co-op’ were to raise capital in this way, the money could then in turn be made available to the bank. The legal structure is slightly convoluted, but the outcome is the same.
The absolute ideal here would be for a new, independent member-owned and controlled co-operative, created exclusively by Bank customers to own the Co-operative Bank Plc. In the current economic climate, we have to ask whether or not this is achievable at present. I would argue, rather bluntly, that the answer is no. This is why I propose that we still need the help and support of the Group to achieve our goals of a member owned and run banking organisation. It should be no surprise, given the symbiotic history, that many of the Bank’s customers are members of the Co-operative Group. The Group has a responsibility to its members to do the right thing by them.
We need to argue loud and clear to the Group that the future of the relationship between the Group and the Bank could be a positive and productive one, but it will need some radical thinking. The Group could raise capital from members to invest directly in the Bank, and it is within the capability of the Group to think of new democratic structures to allow members who are Bank customers to vote specifically on issues relating to the bank. If the Group were able to raise £1.6bn of capital from its bank-customer members, then a welcome side-effect of this plan is that the Co-operative stake in the bank would once again become the majority. We would already be back on track to full co-operative control. Is the Group willing to help us achieve this?
Does the Co-operative Group actually want the Bank?
It is widely accepted and acknowledged that the Co-operative Bank owes its survival to those shady and nameless bad guys, the ‘hedge funds’. It would be wrong, however, to forget the huge investment and sacrifices made by the Bank’s parent – the Co-operative Group – to ensure that the bank’s bailout was successful, and did not cost the taxpayer. The Group had to make some incredibly painful decisions to do this – including selling the profitable Pharmacy and Farm Businesses, which had been part of the Co-operative family for many years. In fact, one third of all the capital raised by the Co-operative Group in its entire existence went towards the rescue. Faced with this pain, many Group members argued that the Group should not have made any effort to rescue the bank, and publicly the Group has been distancing itself from the bank to appease these members. This strikes me as a rather cynical move by the Group – we must not forget that after the disastrous takeover of the Somerfield supermarket chain, a large chunk of the Group’s profits came from the bank for a good number of years. Bad democratic oversight meant that for decades, the group essentially used it as a cash cow without paying any attention to how it was actually being run. This was a grave error which we must ensure never happens again – and we can do just that by ensuring that the bank is democratically controlled by its members, as it should have been all along. In any case, allowing the bank to fail, was never a realistic option, since the collapse of the Bank could well have resulted in the collapse of the Group.
Had the bank gone into resolution, it would almost certainly have spelled disaster for the Group and the wider co-operative movement. Unsurprisingly, the Group banked with the Bank, and had the bank failed, it would have been unlikely that the Treasury would have permitted them access to this money. Nick Crofts, president of the Group’s Member’s Council, spoke about this perilous time in the Group’s history in some depth at the first conference of the Customer Union for Ethical Banking.
The Bank almost collapsed because of mistakes made by the Co-operative Group. It is not morally acceptable for the taxpayer to have to step in to fix mistakes made as a result of shoddy governance by the Group. It is irresponsible to allow the government regulators to have to step in to save the bank. At the same time, it is unbearable to think that if – hopefully when – the bank becomes profitable again in the future, that a private company or investors should profit from assets built up over many years in the name of co-operation. Neither of these outcomes should be satisfactory to a co-operator. There is, I think, a strong argument that the Group should remain involved with the future of the bank, and do everything they can to ensure its survival and success.
What I am proposing is a partnership arrangement, in which we ask the Group to help us achieve our goals – a democratically run bank, controlled and owned by its customers – and in return, the Group will also benefit from a reinvigorated and successful institution. I believe it is right that the Group should reap some of the rewards when the bank returns to profit – as we all hope that it will – but for that to happen, we must work together in the spirit of co-operation.
Let’s open a dialogue about the future
So what do we think? Do we have the vision and energy to create a real customer-owned and operated bank in the UK? The only way we can even hope to move towards this goal is if the voices of members and co-operators are heard loud and clear. Let’s debate – argue, even – about the future of our bank and our movement, but let’s work together to find a positive and pragmatic path forward.
Please do get in touch to voice your own ideas and concerns about the future of the bank, and in particular whether or not you would be willing to invest in a bank that was democratically and financially controlled by its members. It should be quite obvious that I am by no means an expert in finance, banking or even the arcane workings of the co-operative movement, but I do enthusiastically believe in a co-operative future for our bank.
If you haven’t already, I heartily recommend joining The Save Our Bank campaign, run by a co-operative in its own right, the Customer Union for Ethical Banking. It continues to be a strong voice in the long campaign to return the bank to Co-operative Ownership.