Still Co-operative?

The capital injection announced today for the Co-operative Bank resolves its immediate financial needs – in terms of boosting its equity cushion in line with the way regulatory requirements are headed.

But with minority shares and external investors, is it a co-operative?

There is a clear answer. Yes, even if, by degrees, close to the edge.

The indirect nature of member ownership of the Co-operative Bank has long been debated by us anoraks in the sector. Whereas most co-operative banks worldwide are consumer-owned, the UK Co-operative Bank was formed long ago by consumer-owned societies, and started with their needs rather than seeing itself as directly consumer-oriented. It is a co-operative as a direct part of the wider Co-operative Group, as it now is.

Whereas other countries, with some exceptions, have legislation in place allowing for co-operative banks, the UK has never had this clarity and the UK Co-operative Bank is set up in legal terms as a company, wholly owned by the Co-operative Group. Some of this is set out in a useful piece on the Guardian web pages on European co-operative banking.

How the Co-operative Bank ended up needing this capital injection is another story – one that is important to learn from when things settle. Robert Peston sets out many of the key issues in his latest blog but it is also about internal culture and governance, the regulatory shift, particularly in the UK to require higher equity cushions, and the way that ratings agencies operate.

So, is the Co-operative Bank a co-operative?

What is a co-operative is determined by the Statement of Co-operative Identity agreed by the International Co-operative Alliance (ICA). Here, it is Co-operatives UK, as the recognised apex body for the ICA that applies this as a guardian of co-operative identity. Our longstanding policy on implementing this in a UK context, following consultation with our members, was published in 2012.

This covers the issues and challenges of where we are now, including the tensions and issues that need are going to need close attention over time to ensure member ownership and control:

“What starts as one form of enterprise can change. Some co-operatives begin as 100% member owned, and then diversify, offering shares to investor-owners. This applies mainly to farmer co-ops, but also, internationally, to some others needing large investments, such as telecoms and insurance co-operatives. Here, while member ownership is obscured it still exists in a pure form behind the business. Sometimes investors are brought into direct ownership, and here the business can still be seen as member-owned if members retain more than 50% of the equity. However, there are doubts as to whether in practice members can exert enough influence to be said to be still in control. It is harder to apply, but it may be a better if more subjective interpretation to ask not just that members have majority ownership, but that they retain control.”

The Co-operative Bank is on a firm footing. It is a bank, like others, but its value is its difference – it needs to remain co-operative.

5 thoughts on “Still Co-operative?

  1. Agree it needs to stay co-operative, but sadly this is a slippery slope and whilst its co-op elements are not lost yet, as you so clearly say, it will be. In 5 years it will be a bank with great ethics but a bank, not a co-operative.
    I offer no blame, the opportunity and the pressure to help the banking sector caused a stretching that was ambitious at best. I am sure anyone of us with co-op instincts may have been making the same decisions. But I think the bank is lost, we should keep it ethically different if not differently owned.

  2. BCRS as a Community Development Finance Institution (CDFI) is a non-bank lender. Established in 2002 as a Society for the Benefit of the Community by the local Co-operative Development Agency, we fully subscribe to co-operative values. Our members own the Society 100% even though their withdrawable share capital is dwarfed by additional capital we have obtained from european, national, regional and local funding schemes to capitalise micro credit finance institutions. It just shows how an innopvative approach to addressing market needs through a co-operative model can be achieved without sacrificing democratic ownership and control. Our essay on “A Co-operative approach to Small Business Lending” sets out the future opportunities in “Making it Mutual – the Ownership Revoloution that Briatain needs”

  3. What will the voting structure now be? Will the new shareholders get one vote each alongside the coop, or not?

  4. There is a simple but radical solution which pre-dates the banking system and that is for the Co-op to issue to all bond-holders Prepay credit Units of £1.00 par value. Any surplus over costs would then be used to buy back these prepay units thereby literally giving a ‘return’.

    Such units of prepaid revenues were originally called ‘stock’, and pre-date interest-bearing ‘loan-stock’ and shares of absolute ownership ‘Joint Stock’ in the sociopathic Plc corporate entity.


    One of the interesting additional possibilities is that the Co-operative Group could agree to accept the units in payment for goods and services as well, thereby enhancing the return.

    Units of prepaid rentals also combine a resolution for unsustainable housing debt such as Co-op/Britannia’s mortgages, and a new pension asset-class akin to a REIT with units returnable in payment for rent.

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