Thursday, 28 June 2012

Problems with shareholder banks continue-what about the mutual alternative?



I was very sceptical when some Lib Dems were suggesting that there should be a a give away of the nationalised banks and wrote about it at the time (.http://birkdalefocus.blogspot.co.uk/2011/03/dont-give-shysters-back-banks-mr.html)




With more details of the indifference of shareholder towards the ethics of companies that they invest in emerges it is time to explore the alternatives. Shareholders are interested in very little other that a quick return on their investments. Short-termism is built into their DNA.



Vince Cable was one of those who opposed the demutualisation of the Building Societies. Recently he identified that action -prompted as it was by a crude view of the virtues of simplistic market mechanisms and the supposed superiority of the PLC model of ownership-as one of the great acts of economic vandalism in modern times. He wrote about the unavailability of capital for house building:



A key reason is the destruction of the British building society movement – or much of it – in the two decades after the late 1980s. This was one of the great acts of economic vandalism in modern times. And the commercial banks largely abandoned locally based relationship banking in the decade before the recent financial crisis. There is now no institutional structure in place to offer countercyclical lending, particularly small and medium sized businesses, in place of the banks.


I did not feel Mr Williams MP had a very good idea in promoting another shareholder owned bank. Ed Mayo from Co-Operatives UK made a similar point in an interview with the FT:

“We would say co-operative member democracy works better than shareholder democracy,” he said.



Responding to an idea by Nick Clegg, the deputy prime minister, to transfer the government’s stake in Lloyds and Royal Bank of Scotland to all adults in the UK, he said. “If you look at the ‘Tell Sid’ privatisation [of British Gas] you get a one-off boost for small shareholders then the traditional forces quickly take over.”


He also called for Northern Rock, the bank that was nationalised to prevent its failure, to be remutualised..................

(The full interview is here: http://www.ft.com/cms/s/0/76e01398-9e5e-11e0-8e61-00144feabdc0.html#axzz1z5XEWIt0)

The issue has always been allegedly the raising of the capital but a paper from Kellog Colleg Oxford charts a way in which this could be realised.

Vince Cable's comment came ion his speach to CentreForum about learning lessons from the 1930s and the rest of the paragraph reads:

By contrast we are now in a downward, opposite spiral. A key reason is the destruction of the British building society movement – or much of it – in the two decades after the late 1980s. This was one of the great acts of economic vandalism in modern times. And the commercial banks largely abandoned locally based relationship banking in the decade before the recent financial crisis. There is now no institutional structure in place to offer countercyclical lending, particularly small and medium sized businesses, in place of the banks. A major and urgent task of government today is to ensure that we have banks that meet that requirement, alongside counter cyclical regulations and liquidity measures of the kind set out at last Thursday’s Mansion House speeches. We now look enviously at Germany where the Sparkasse and KFW underpin a business and mortgage lending system which works.




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