So, the deal between Lloyds and the Co-operative Bank is off.
It held the prospect of being a game changer in banking, simply by extending the branch network for the Co-operative Bank across a far wider reach across the country. In addition to 630 branches, over four million customers would have come across, the result, ultimately, of a decision by the regulator that Lloyds, for taking the shilling of the state, needed to sell some of its branches, to limit its sway.
This was always a huge financial deal, with high risks for the co-operative sector balanced out by a long-term view of the benefits of being in retail banking at a scale on which the Co-operative Bank could be a competitor that could help shape good practice and make returns for members. It is to the credit of the Co-operative Group that it explored it, was up for it, and that it had the business nous now to step away. The concerns, which were around regulatory requirements, capital backing, payback periods, are real. No one wants to bet the bank when it comes to the largest co-operative business in the country.
We will now have a TSB, we expect, as the branches are floated off separately. But can this be anything like a Trustee Savings Bank – something with its own proud record of ethical action?
The story of savings banks, begins in 1798, when Henry Duncan became minister of Ruthwell, a small village on the edge of the Solway Firth in South West Scotland. Professor Johnston Birchall, who has a book out next week on customer owned banks worldwide, has charted Duncan’s early efforts.
Duncan set out trying to improve the lot of his desperately poor parishioners, buying flax for women to spin in their cottages, employing men to turn his land into a model farm or to work on the roads, reviving a local friendly society and importing grain at wholesale prices. In 1810 he then decided to set up a parish bank. Local landowners backed him as they liked the idea of getting people off parish poor relief through their own savings.
Duncan had the right skills, as he had spent three years working in a bank in Liverpool before becoming a minister. The idea, says Birchall, was simple. People could open a savings account with just six pence. The business model was easy to copy and within five years of the first bank opening, there were savings banks throughout the United Kingdom, then spreading around the world.
As Johnston Birchall says, though, “unfortunately, they had a flaw; they were not really owned by anyone, but administered as trusts by whoever could get their hands on them.” The co-operative and mutual model in turn offered a remedy, through membership and board election.
There is one authentic savings bank left, the Airdrie Savings Bank in Scotland, but the big question for the new bank is whether it will operate with an ounce of the motivation that inspired Henry Duncan.
For now, the best way to change banking, as the move your money campaign suggests, is to change your bank. Four million customers won’t have that as an automatic option now, but whether to the Co-operative Bank, building society or the credit unions that offer it, the offer to switch is still on the table.