Monday, 18 July 2011

Diversity of Ownership in the financial sector-an alternative to share owner banks

We are often told that we have to accept things 'because they were in the coalition agreements'. In which case we could do with an implementation plan for the paragraph that reads:

“We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to foster diversity in financial services, to promote mutuals and to create a more competitive banking industry

An all party group has published a report today that tackles this issue. Many of us have identified the dominance of the 'share ownership ' model as one of the causes of the financial crash. If the chief obligation for directors of a bank is to build share holder value then it leads to increased risk taking. We have long argued that one of the reforms needed is to increase the diversity of ownership models.

Those (few of us) who argued against the de-mutualisation made possible by the banking reforms of Thatcher in 1986 did so for several reasons
  • they would soon be bought up by corporate shareholders whose objective would be to make a quick buck
  • loose financial institutions owned by those who saved in them and whose objectives was to provide a service for those members
  • remove from the market the choice of a low risk, long term financial products particularly suited to providing home mortgages, life assurance, savings and pensions (and who knows they may have come up with a bond to fund social care)
  • because they stood out against the view that the profit motive was good in itself
  • the belief that they would provide the sort of long term financial relationship with local businesses that is at the heart of the success of the co-ops in Mondragon and the SME's in Germany
Instead of which in the privatisation culture created by the IEA two thirds of the asset wealth previously owned by mutuals was bought up businesses whose model of ownership was our highly regressive share ownership model.  Even the TSB was sold off . Disaster followed. Most landed up in banks and all  of them were victims of the crash. What was left of the mutual sector fared much better. This is one of the reason why the 'ask Sid' proposal to hand out shares in the nationalised banks must be resisted.

Our alternative is to see the growth of mutuals so that there is more diversity in the models of ownership in financial institutions. We also believe that this democratic model of ownership permanently anchors the wealth in the community and creates regional financial institutions that can play a long term role in the financing and growth of industry . I might also say it tackles the absurd and obscene bank bonus culture.

So three cheers for the all party group report today. the introduction asserts:

Government has concentrated its policy efforts on encouraging the development of new mutuals to provide public services rather than focusing on the importance of the existing financial mutual sector

Government needs to urgently adopt a comprehensive policy strategy to implement its Coalition Agreement commitment to promote these mutuals.

The priorities of the Financial Services Authority are not aligned with this Government objective to promote mutuals.

Upcoming legislation to establish the new regulatory authorities must specifically commit them to promote mutuals and foster diversity.

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