This article originally appeared on
AlterNet.
According to both the Mayan and Hindu calendars, 2012 (or
something very close) marks the transition from an age of darkness,
violence and greed to one of enlightenment, justice and peace. It’s hard
to see that change just yet in the events relayed in the major media,
but a shift does seem to be happening behind the scenes; and this is
particularly true in the once-boring world of banking.
In
the dark age of Kali Yuga, money rules; and it is through banks that
the moneyed interests have gotten their power. Banking in an age of
greed is fraught with usury, fraud and gaming the system for private
ends. But there is another way to do banking; the neighborly approach of
George Bailey in the classic movie “It’s a Wonderful Life.” Rather than
feeding off the community, banking can feed the community and the local
economy.
Today, the massive too-big-to-fail banks are hardly doing George
Bailey-style loans at all. They are not interested in community lending.
They are doing their own proprietary trading—trading for their own
accounts—which generally means speculating against local interests. They
engage in high-frequency program trading that creams profits off the
top-of-stock market trades; speculation in commodities that drives up
commodity prices; leveraged buyouts with borrowed money that can result
in mass layoffs and factory closures; and investment in foreign
companies that compete against our local companies.
We can’t do much to stop them. They’ve got the power, especially at
the federal level. But we can quietly set up an alternative model, and
that’s what is happening on various local fronts.
Most visible are the Move Your Money and Occupy Wall Street
movements. According to the Web site of the Move Your Money campaign, an
estimated 10 million accounts have left the largest banks since 2010.
Credit unions have enjoyed a surge in business as a result. The Credit
Union National Association reported that in 2012, for the first time
ever, credit union assets rose above $1 trillion. Credit unions are
non-profit, community-minded organizations with fewer fees and less fine
print than the big risk-taking banks, and their patrons are not just
customers but owners, sharing partnership in a cooperative business.
Move “Our” Money: The Public Bank Movement
The Move Your Money campaign has been wildly successful in mobilizing
people and raising awareness of the issues, but it has not made much of a
dent in the reserves of Wall Street banks, which already had $1.6
trillion sitting in reserve accounts as a result of the Fed’s second
round of quantitative easing in 2010. What might make a louder statement
would be for local governments to divest their funds from Wall Street,
and some local governments are now doing this. Local governments
collectively have well over a trillion dollars deposited in Wall Street
banks.
A major problem with the divestment process is finding local banks
large enough to take the deposits. One proposed solution is for states,
counties and cities to establish their own banks, capitalized with their
own rainy day funds and funded with their own revenues as a deposit
base.
Today only one state actually does this: North Dakota. North Dakota
is also the only state to have escaped the credit crisis of 2008,
sporting a sizeable budget surplus every year since. It has the lowest
unemployment rate in the country, the lowest default rate on credit card
debt, and no state government debt at all. The Bank of North Dakota
(BND) has an excellent credit rating and returns a hefty dividend to the
state every year.
The BND model hasn’t yet been duplicated in other states, but a
movement is afoot. Since 2010, 18 states have introduced legislation of
one sort or another for a state-owned bank.
Values-based Banking: Too Sustainable to Fail
Meanwhile, there is a strong movement at the local level for
sustainable, “values-based” banking—conventional banks committed to
responsible lending and service to the local community. These are George
Bailey-style banks, which base their decisions first and foremost on
the needs of people and the environment.
One of the leaders internationally is Triodos Bank, which has local
offices in the Netherlands, Belgium, the United Kingdom, Spain, and
Germany. Its Web site says that it makes socially responsible
investments that are selected according to strict sustainability
criteria and overseen by an international panel of “stakeholder”
representatives representing various community, environmental, and
worker interest groups. Investments include the financing of more than
1,000 organic and sustainable food production projects, more than 300
renewable energy projects, 33 fair trade agricultural exporters in 22
different countries, 85 microfinance institutions in 43 countries, and
398 cultural and arts projects.
Two U.S. banks exemplifying the model are One PacificCoast Bank and
New Resource Bank. Operating in California, Oregon and Washington, One
PacificCoast is comprised of a sustainable community development bank
with around $300 million in assets and a non-profit foundation (One
PacificCoast Foundation). Its commercial lending business focuses on
such sectors as specialty agriculture, renewable energy, green building,
and low-income housing. Foundation activities include programs to “help
eliminate discrimination, encourage affordable housing, alleviate
economic distress, stimulate community development and increase
financial literacy.”
New Resource Bank is a California based B-corporation (“Benefit”)
with $171 million in assets, which focuses its lending and banking
services on local green and sustainable businesses. New Resource was
recognized in 2012 as one of the “Best for the World” businesses, being
in the top 10 percent of all certified B-Corporations and scoring more
than 50 percent higher than 2,000 other sustainable businesses in
overall positive social and environmental impact.
All this might be good for the world, but isn’t investing locally in a
values-based bank riskier and less profitable than putting your money
on Wall Street? Not according to a study commissioned by the Global
Alliance for Banking on Values (GABV). The 2012 study compared the
financial profiles between 2007 and 2010 of 17 values-based banks with
27 Globally Systemically Important Financial Institutions
(GSIFIs)—basically the too-big-to-fail banks, including Bank of America,
JPMorgan, Barclays, Citicorp and Deutsche Bank. According to the GABV
report, values-based banks delivered higher financial returns than some
of the world’s largest financial institutions, with a return on assets
averaging above 0.50 percent, compared to just 0.33 percent for the
GSIFIs; and returns on equity averaging 7.1 percent, compared to 6.6
percent for the GSIFIs. They appeared to be stronger financially, with
both higher levels of and better quality capital; and they were twice as
likely to invest their assets in loans.
CDFIs
Along with the values-based banks, community investment is undertaken
in the United States by Community Development Financial Institutions
(CDFIs), including community development banks, community development
credit unions, community development loan funds, community development
venture capital funds, and microenterprise loan funds. According to the
CDFI Coalition, there are over 800 CDFIs certified by the CDFI Fund,
operating in every state in the nation and the District of Columbia. In
2008 (the last year for which a report is available), CDFIs invested
$5.53 billion “to create economic opportunity in the form of new jobs,
affordable housing units, community facilities, and financial services
for low-income citizens.”
Two of many interesting examples are the Alternatives Federal Credit
Union and Boston Community Capital. Alternatives FCU, located in Ithaca,
New York, is committed to community development and social change and
is part of the Alternatives Group, which includes a non-profit
corporation (Alternatives Community Ventures); a 40-year old trade
association of community groups, cooperatives, worker-owned businesses
and individuals (Alternatives Fund); and a not-for-profit organization
that facilitates secondary capital investment in the credit union
(Tomkins County Friends of Alternatives, Inc.). The credit union has
over $70 million in assets and offers many innovative financial
products, including individual development accounts—special savings
accounts for low-income residents that offer matching deposits of two to
one up to a certain amount—in addition to more traditional services
such as loans for minority and women-owned businesses, and affordable
mortgages. The credit union also offers small business development
(classes, seminars, consultation, and networking programs), free tax
preparation, and a student credit union.
Although its lending programs focus on lower-income borrowers,
Alternatives FCU has had lower delinquency and charge-off rates than
many major banks that avoid these types of customers. Boston Community
Capital (BCC) is a CDFI that is not actually a bank but invests in
projects that provide affordable housing and jobs in lower-income
neighborhoods. BCC includes a loan fund, a venture fund, a mortgage
lender, a real estate consultation organization, a solar energy fund,
and a federal New Markets Tax Credit investment vehicle. Since 1985, it
has invested over $700 million in local organizations and businesses.
These funds have helped build or preserve more than 12,800 affordable
housing units, as well as child care facilities for almost 9,000
children and healthcare facilities that reach 56,000 people. Their
investments have helped renovate 850,000 square feet of commercial real
estate, generate 5.9 million KW hours of solar energy capacity, and
create more than 1,500 jobs.
Less Money for Banks and More for Workers: The Models of Germany and Japan
Values-based banks and CDFIs are a move in the right direction, but
their market share in the U.S. remains small. To see the possibilities
of a banking system with a mandate to serve the public, we need to look
abroad.
Germany and Japan are export powerhouses, in second and third place
globally for net exports. (The U.S. trails at 192nd.) One competitive
advantage for both of these countries is that their companies have ready
access to low-cost funding from cooperatively owned banks.
In Germany, about half the total assets of the banking system are in
the public sector, while another substantial chunk is in cooperative
savings banks. Germany’s strong public banking system includes 11
regional public banks (Landesbanken) and thousands of municipally owned
savings banks (Sparkassen). After the Second World War, it was the
publicly owned Landesbanks that helped family-run provincial companies
get a foothold in world markets. The Landesbanks are key tools of German
industrial policy, specializing in loans to the Mittelstand, the
small-to-medium size businesses that drive the country’s export engine.
Because of the Landesbanks, small firms in Germany have as much
access to capital as large firms. Workers in the small business sector
earn the same wages as those in big corporations, have the same skills
and training, and are just as productive. In January 2011, the net value
of Germany’s exports over its imports was 7 percent of GDP, the highest
of any nation. But it hasn’t had to outsource its labor force to get
that result. The average hourly compensation (wages plus benefits) of
German manufacturing workers is $48—a full 50 percent more than the $32
hourly average for their American counterparts.
In Japan, the banks are principally owned not by shareholders but by
other companies in the same keiretsu or industrial group, in a circular
arrangement in which the companies basically own each other. Even when
there are nominal outside owners, corporations are managed so that the
bulk of the wealth generated by the corporation flows either to the
workers as income or to investment in the company, making the workers
and the company the beneficial owners.
Since the 1980s, U.S. companies have focused on maximizing short-term
profits at the expense of workers and longer-term goals. This trend
stems in part from the fact that they are now funded largely by capital
from shareholders who own the company and want simply to grow their
returns. According to a 2005 report from the Center for European Policy
Studies in Brussels, equity financing is more than twice as important in
the U.S. as in Europe, accounting for 116 percent of GDP compared with
62 percent in Japan and 54 percent in the eurozone countries. In both
Europe and Japan, the majority of corporate funding comes not from
investors but from borrowing, either from banks or from the bond market.
Funding with low-interest loans from cooperatively owned banks leaves
greater control of the company in the hands of employees who either own
it or have much more say in its operation. Access to low-interest loans
can also slash production costs. According to German researcher Margrit
Kennedy, when interest charges are added up at every level of
production, 40 percent of the cost of goods, on average, comes from
interest.
Globally, the burgeoning movement for local, cooperatively owned and
community-oriented banks is blazing the trail toward a new, sustainable
form of banking. The results may not yet qualify as the Golden Age
prophesied by Hindu cosmology, but they are a major step in that
direction.
Ellen Brown is an attorney, author, and president of the Public Banking Institute. Her latest book is Web of Debt.
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