How is a community bank different from a conventional bank?
The community bank is different from the conventional bank in a lot of ways:
The Community Bank operates within a designated local region and has an obligation to serve the needs of the community in that local region only.
The Conventional Bank’s operations are not restricted to any particular region and it has no obligation to promote the local economy.
The Community Bank is owned and controlled by its customers who become members by purchasing at least one £15 share in the bank. Members are allowed one vote, regardless of how many shares they’ve purchased although dividends are proportional to investment.
The Conventional Bank is owned by its shareholders who are unaccountable to customers and the local region.
Members of the Community Bank must live in the local region only. This ensures that ownership and management is local, and that all deposits are local.
Shareholders of the Conventional Bank can, and often do, live anywhere outside the region and are unlikely to know about or have a vested interest in the local region.
Membership of the Community Bank is open to anybody living in the local region regardless of their financial means, thus promoting financial inclusion.
The Conventional Bank can refuse to do business with people who are in financial difficulties or who are not financially attractive, thus excluding people with diminished financial means.
Members of the Community Bank will pay modest fees; the community bank won’t be free. But fees are only charged to members to give the bank a sustainable level of profitability, with profits being re-invested in the local region.
The Conventional Bank is profit-driven so fees and interest rates are often costly to customers but lucrative for the bank, thus generating big profits mostly spent on shareholder dividends, staff bonuses and investments outside the local region.
The Community Bank retains member’s deposits for investment in the local economy. Investment is in the form of loans for productive purposes, especially to small businesses, that benefit members and the local region.
The Conventional Bank engages in extensive speculative investments and investments outside the local region. Much of this takes deposits from the local region, isn’t for productive purposes, and doesn’t contribute to the real economy.
The Community Bank retains profits and interest from lending for investment in the local economy.
The Conventional Bank’s profits are often taken out of the local economy.
The Community Bank makes loans to members only which means all loans are local.
The Conventional Bank can make loans to customers living anywhere and isn’t restricted to local lending.
The Community Bank makes all loan decisions locally.
More often than not, loan decisions at the Conventional Bank are made at a central branch and not in the local branch.
The Community Bank invests in small businesses, start-ups and the self-employed to promote productive lending that stimulate the real economy and create local jobs.
The Conventional Bank prefers dealing with big customers i.e. rich customers, big businesses, favouring speculative lending which does little or nothing for the real economy and which pushes up the price of property and other assets.
In the Community Bank people come first, not targets or profits.
In the Conventional Bank profits and shareholders’ interests come first.
The Community Bank members elect a Board which is made up of local people. It runs the bank on behalf of members and answers to members.
The Conventional Bank is run by managers who answer to their shareholders and not their customer base or the needs of the region.
Community Bank staff build relationships with members, getting to know them, their families and their particular circumstances, thus helping to build mutual trust.
The Conventional Bank is less likely to know its customers, and staff less likely to build relationships, because the bank is not closely connected with the local region.
The Community Bank cannot be taken over or sold into private ownership.
The Conventional Bank is in the private ownership of shareholders.
The Community Bank has no staff incentive structures such as bankers’ bonuses and commission-based sales targets. This means staff are more like to offer products and services to members that are thought to be in their best interests.
The Conventional Bank’s incentive culture can encourage staff to engage in imprudent or irresponsible behaviour. Senior staff continue to take inflated bonuses despite the rising number of complaints and reputational scandals.
The Community Bank’s regional focus makes it more resilient to financial downturns or crashes and less prone to boom-bust cycles and banking crises.
The Conventional Bank is not resilient so when it comes to crashes. Just think about the 2008 financial crisis! Need we say more?