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Can we set up a new co-op bank? November 30, 2010

Posted by Tomboktu in A co-op bank.
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The other day, sonofstan suggested

One very useful, sane and practical thing ICTU could do, and they’re probably the only organisation in Irish society with the resources to do it, is set up a co-op bank.

I would be interested in trying to pursue that suggestion, and in response to sonofstan’s comment said I would try to turn it into a motion for my union branch AGM in the next few weeks. I turn to you, CLR readers, for help with this.

The first question is feasibility: assuming it had the desire to, could Congress set up a co-op bank? The website howbankingworks.ie sets out some requirements for a bank in Ireland:

To obtain a banking licence, the applicant must:-

  • Have a significant paid-up share capital. The documents available from IFSRA indicate a requirement for IR£5m paid up share capital – this amount has remained unchanged for more than 20 years. IFSRA has powers to amend this amount, and reflecting the change in the value of money in the intervening period, this author is of the opinion that the amount required now would exceed €10m.
  • Have a demonstrable capacity to access or subscribe such further capital as may be required from time to time
  • Ensure that there is no dominant shareholder among the group. Any shareholder holding more than 5% would be subject to exceptional requirements. The dominance rule refers to immediate connections of the shareholder. In practice, the holdings of a husband, wife, and children are considered together for calculation of dominance. In practice, the dominance rule suggests that a minimum of 20 shareholders are required, while conforming with the dominance requirement.
  • Also, it must ensure that the bank’s deposits are not dominated by a single shareholder, or by the top 10 depositors (who together may not exceed 50% of the banks deposits)
  • Have objectives and a plan which conform to sound banking principles
  • Establish a legal entity and corporate structure which is suitable for the business of banking, with appropriate board-level controls, internal controls, including risk controls and audit controls, and reporting systems
  • Board members must be undoubted, and have suitable experience and skills, and IFSRA reserves the right to approve (or reject) individual members.
  • Ensure appropriate insurance or other guarantees for the fidelity of its staff.
  • Conform at all times to a range of financial ratios including specified capital adequacy requirements, liquidity ratios, etc.
  • Put in place suitable systems for control of lending exposure, including exposure to businesses in which a shareholder has an interest
  • Conform to a wide range of legislation including money-laundering legislation
  • Participate in the deposit protection scheme
  • The above list is far from complete, but indicates the nature of the most significant requirements.

    It is clear from this that Congress could not own a bank by itself, but that would not be the purpose of a co-op bank anyway. Getting people with the relevant skills would probably take a bit of work with a new bank, but I would be surprised if it were impossible. It might be difficult for Congress to do that, though.

    I think the most sensible approach for the coming union conference season would be trying to get Congress and individual unions to do preparatory work rather than jumping straight in with a set of motions instruction them to set up a new co-op bank.

    I can identify things that need to be thought about in preparing motions on preparatory work. First, what should that work consist of? If the Congress leadership isn’t highly enthused about this, how would a motion be framed in such a way as to limit (or even prevent) them from swatting it away with a token “feasibility study” and burying it? [Obviously, if somebody senior was determined to kill the idea, it would be difficult to stop them. For example, suppose a decision is made to commission a team of banking, legal, and other experts to prepare an analysis for the next Congress biennial delegate conference. A key official in Congress could steer the research by asking the experts to assess the level of interest in the idea, or to give greater detail in the report on the barriers and risks.]

    Second, what is the best way of getting Congress’s attention and involvement? Is it a request from one or two unions at the Congress executive for the establishment of a working group to explore the idea or is it a motion on the floor of the biennial delegate conference?

    And third: am I missing anything essential?

    Your thoughts on this, fellow CLRers?

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    Comments»

    1. sonofstan - December 1, 2010

    From some very quick wiki-led research, it would appear that the co-op model elsewhere – co-op in the UK, Rabobank in Holland – has, instead of share capital, the actual deposits of members as its capital and they in turn, become its shareholders – the actual owners (or at least did at one point – in both cases, it has changed)Rabo is essentially owed by a huge number of credit unions, each of which remains independent, and I think the co-op in the UK was similarly a ‘hive’ rather than a single monolith. The difficulty of course is how you would build up deposits to the point where you could get a banking license before you actually has a bank….

    CL posted up a link to his union owned bank in the US on the original thread (not sure how to link to single comment)

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    2. Worldbystorm - December 1, 2010

    This is a central issue you point to Tomboktu. The answer(s) and proposals will be very interesting to hear. In principle I can’t see why it would be impossible, unions have a history of semicommercial subsidiaries.

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    3. Jim Monaghan - December 1, 2010

    The credit unions have been talking for yonks about creating banking services. Not necessarily the full range but Visa, bank cards, atms etc. I feel the big credit unions could dom it and they have a branch structure. Initially it would hvae to be reserved to the healthy ones. A lot were used by the small gombeen types and got burned.
    If you are in a workforce you should try and get one started or get one in another place to extend to you. Likewise in communities

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    4. RosencrantzisDead - December 1, 2010

    A ‘bank’ may not be the type of model you want, Tomboktu. A building society is a mutual that can provide many types of financial service. It may be easier to set up because, I believe, the capital requirements and membership rules are not as tough as those of a commercial bank.

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    5. Was that ‘Yes’, ‘No’, or ‘No, but I want you to think it’s “Yes”‘ « The Cedar Lounge Revolution - April 22, 2011

    [...] great patience being a backbench TD. On Wednesday, Robert Dowds asked a parliamentary question on a pet topic of mine, co-op banks and mutually owned financial institutions.   72. Deputy Robert Dowds [...]

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    6. Gerry - December 18, 2013

    Please join us at The Public Banking Forum of Ireland (PBFI) http://www.republicirelandbank.com We are working to introduce Public Banking to Ireland.

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