Regarding mutual banks

There are a number of people out there insisting that the solution to the banking system problems is to mutualise that system. If there were no greedy shareholders looking to profit then decision would be made purely in the interests of depositors and borrowers and in some manner all would be right with the world. There would be, for example, no more bank failures.


The Government is thought to be preparing a £60 million bailout of the Dunfermline Building Society, which is said to be on the brink of announcing a loss of £26 million.

Its problems stem from exposure to bad loans in the commercial property market, and some estimates have suggested that a write-down in the value of the business could make its losses nearer £90 million.

The Dunfermline Building Society is of course one of those that demutualised, isn´t it? One that has been ruined by the short term greed of the shareholders?

The Society is a mutual organisation and as such, exists to serve the needs of members without the necessity to satisfy shareholders. Profits made are sufficient only to provide for the costs of the business.

Ah. So perhaps mutualisation is not the magic bullet then?

6 thoughts on “Regarding mutual banks”

  1. There are no easy solutions – utopias do not exist.
    There are some things which will help mitigate the risks and cushion the effects of inevitable bank failures.

    A mutual system is one possibility – personally I’d like to see government out of banking giving a freed market to allow greater competition between different models.

  2. An adjustment of the incentive structure might be useful too: hanging some CEOs pour encourager, say.

  3. Tristan,

    I think that we need government out of the risk protection business. They’ve shown that they’re incapable of determining risk properly and so it should be left to insurance companies. They protected both Crock and Nationwide at the same (zero) cost despite one being a more risky business than the other.

  4. ‘Weren’t Savings and Loans the US equivalent of mutualised Building Societies? ‘ No. S&Ls were stockholder owned. They were originally restricted to making home loans, but when this restriction was removed (Congressmen were bribed) they got into more risky areas. Credit Unions are the US equivalent of mutual societies.

  5. “They’ve shown that they’re incapable of determining risk properly and so it should be left to insurance companies”

    AIG seem the most obvious candidate.

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