The following article in the FT gives hope - and finally direction - that a new form of capitalism can be born - that works with the principles of everyday democracy - rather than over empowering the "levering few" to create a pusedo autocracy [where leadership defeats accountability] Don't get me wrong the current mutual model has its problems - one of the most significant is the ability to socially innovate as the need for accountability often defeats leadership/entrepreneurship. This to me presents the interesting organisation challenge - in the mutual model - a need to combine everyday legitimacy [in scale] with leadership to deliver the sustainable innovation.
Darling to give backing to mutual model
By George Parker and Jim Pickard
Published: March 20 2009 20:03 | Last updated: March 20 2009 20:03
Alistair Darling will next month signal strong support for mutual savings banks and building societies when he sets out a white paper on strengthening Britain’s financial system.
The chancellor has spoken warmly about the mutual model, embodied in institutions such as Nationwide, which tend to run a less risky business model, based on savings and lending. The Treasury is assessing potential legal or regulatory changes to help mutuals ahead of the white paper.
“That would include mutuals and credit unions. Having institutions which fund themselves using different models is good from the point of view of financial stability.”
Although Mr Darling accepts that some mutuals can be run just as badly as banks such as Northern Rock, he believes they are less likely to use “extreme” funding models or to depend so heavily on wholesale money markets. Building societies have only 20 per cent of the mortgage market, down from 59 per cent before the wave of demutualisations sparked by the Building Societies Act of 1986.
Since then, the number of mutuals has fallen from 110 to 55 – a fraction of the 1,700 that existed in 1900.
Occasionally there have been conversions in the other direction, such as four years ago when Bristol & West was bought from Bank of Ireland by Britannia. Mr Darling is under pressure from within the Labour party to revive the sector. Michael Stephenson, general secretary of the Co-operative party – which numbers 29 Labour MPs among its members – said there was a “unique” opportunity to remutualise parts of the banking industry.
He said the mutual model was the obvious way forward for Northern Rock and Bradford & Bingley. The two institutions could be consolidated into a single new building society which would be owned by its members, he said. Alternatively existing mutuals could be given the right of first refusal when the pair were sold.
This idea has won the backing of the influential Compass group of left-leaning MPs, which wants to go further and mutualise other high street banks.
In theory the process would be easy, given that a new building society needs only £1m of funds and at least 10 members. But there could be a large cost – to either the government or members – in setting up a new entity, especially if it has large debts.
Treasury officials have signalled that Mr Darling would prefer to sell Northern Rock back into the private sector at some point for a profit.
Supporters of the mutual model admit that it is not perfect. Four of the weaker brands have been bought by stronger rivals in the past year to prevent their collapse. It has emerged that Dunfermline, Scotland’s biggest building society, is in effect up for sale after becoming loss-making.
But a spokeswoman for the Building Societies Association said that the time was ripe for an expansion of the sector, given that its model tended to lead to cheaper borrowing rates. “Customers are fed up with the plc banking model, this is a good time for alternative models.”