Setting up a community bank is about taking back control of our banking system.
The current banking system in Ireland and Britain is a highly concentrated private banking system, an oligopoly. It’s controlled by about 7 big banks who are generally unaccountable to their customers and the general population for their actions. In Britain, the 7 biggest banks account for over 90% of all deposits and loans. This high level of concentration is problematic, it crowds out meaningful competition or alternative approaches to banking and makes the banks “too big to fail”. Because they were “too big to fail” in the 2008 crisis, the banks were bailed out using public money. Nothing has changed since then, they’re still “too big to fail”. If another crisis were to happen, public money would be used again. After a decade of austerity measures, what kind of state would that leave public services in? And besides, is this really what we want public money spent on?
The private banking system is profit-driven. Profits must be made at any cost. Decisions and actions are focused on profit-making. Because of this, the banking system doesn’t serve the real economy, or the people, the small businesses and the communities who live in it. Big banks use automated and anonymous credit scoring systems to arrive at loan decisions. Big banks charge high rates of compound interest, often excessive fees, and in the days of reckless lending, they approved lending such as subprime mortgages, and credit cards and loans that were beyond the ability of many to pay. Once the 2008 crisis hit, those reckless lending practices left many ordinary people with crippling debt they couldn’t pay or struggled to pay. And paying back debt, if you don’t go under in the process, takes money out of the real economy, depressing it.
These days, big banks prefer to lend to big customers who want to purchase large-scale assets which is the kind of lending that fuels asset bubbles. And at the same time, the smaller customer (an individual, a self-employed person, a small business, a community group or charity) who contributes directly to the real economy, struggles to secure the low-cost finance they need. More and more, the big banks are seen as faceless. They’re closing their branches, moving further away from their customers and local communities. When you ring the local branch of your bank, chances are you won’t get through to your local branch but to a central call centre.
Nothing about the private banking system works in the best interests of ordinary people living in the real economy. The practices they engage in create boom-bust cycles, financial crises, and greater income and wealth inequality, making little or no contribution to the real economy.
The system is out of control and not-fit for purpose. The system is broken. A different type of bank is needed. We need a banking system that is people-driven, that works for the benefit of the local community and the people in it. Such a banking system is entirely achievable. In fact, it already exists in other places.
Germany is a good example. The top 5 banks in Germany have a mere 12% of the market share. Most of their banking sector is made up of small banks, both community banks (30%) and public banks (40%), with headquarters in smaller towns that deal with smaller, often family-owned, companies. High levels of trust exist between the customers and their bank, where the customer knows the bank and the bank staff; where branches aren’t being closed down; where bank staff don’t constantly change or leaving because of cut-backs; where the bank knows the customers, their families, where they live and what they do.
We can have a system like that. We can choose to have a bank that focuses on our region and our region only, where our money is invested in the local economy and local people, where we can take back control.