I tiptoed on to the ethical shores of the Co-op bank . . .

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mind the gap coverFerdinand Mount is the author of Mind the Gap: Class in Britain Now (2004).

Once described as ‘Mao-meets-Oakeshott’ *, he charted the state’s destruction of the friendly societies, private working class schools, reading rooms, workers’ educational associations, collective insurance, trade unions and other institutions set up by working-class communities in a spirit of self-help, mutual aid and fraternity.

He writes:

I must admit to a certain personal discomfort at the debacle of the Co-operative Bank, of which I, through every fault of my own, a member am. Not only has it foundered in rather deep financial water, but the personal life of former chairman the Rev Paul Flowers proved a touch too scarlet for the pink pages to handle comfortably.

I joined the Co-op after 50 years of leaving my overdraft to repose in the arms of Barclays Bank. But the behaviour of Bob Diamond and his associates finally decided me. Up with such rampant looting, such cynical disregard for the customer, such sheer incompetence I could no longer put. I wrote a stiff letter to Mr Diamond, to which of course he did not reply, not even via some smoother in the PR department. I said goodbye to the delightful ladies in the Upper Street, Islington branch (there is no more piquant disjunction than that between the courtesy of every bank’s counter staff and the boorishness of its boardroom). And I tiptoed on to the ethical shores of the Co-op. What could conceivably go wrong? How could a not-for-profit, mutually owned bank go wrong? Well it did – and on a scale that seems positively epic.

KPMG failed to vet the corporate loan book of the Britannia Building Society

If there is anything to be salvaged from the wreckage of all this moral grandstanding, it may be to provoke us to examine more closely the causes of bank crashes in general and of the Co-op’s travails in particular. There has been much focus on the bank’s leadership. Like those calamitous Scottish banks Royal Bank of Scotland and HBOS, it was led by men with little or no banking experience. So it won’t do to dump all the blame on Paul Flowers. The bank had hired respected professional bankers and the mega accountants KPMG, whose defence for signing off the accounts is that nobody asked them to vet the corporate loan book of the Britannia Building Society, which turned out to be terminally toxic. A layman might inquire whether it isn’t an auditor’s duty to crawl over such a new and sizeable addition to the balance sheet.

Had the Co-op been owned by its customers, it might have been more careful with depositors’ money, like, say, Nationwide

Doesn’t this suggest mutuals are peculiarly unsuited to the perilous world of modern finance? I don’t think so. For one thing, the Co-op may have an ethical stance, but it isn’t really a proper mutual. When I opened my account and plonked down a dollop of my savings, I did not automatically become a member of the Co-op. To obtain my membership card, with its pleasing honeycomb motif, I had to fill in a separate form like any other member of the public. The Co-op Bank is simply an offshoot of the Co-op Group – an ordinary bank that happens to be wholly owned by a single shareholder.

There is indeed a case for arguing that, had the Co-op been owned by its customers, it might have been more careful with depositors’ money, like, say, Nationwide, which came through the crunch unscathed and will no doubt be the next port of call for us finicky investors. It was the demutualised building societies that had turned themselves into banks, like Northern Rock and Bradford and Bingley, which came to grief during the crunch.

There remains an undeniable buzz from working in a mutual, a genuine sense of partnership and a lessening of friction between management and workforce. The long-running success of the John Lewis Partnership and the Mondragon network in Spain give lie to the usual objections that workers don’t want responsibility and will never dare to make necessary lay-offs in hard times.

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 Source: http://www.ft.com/cms/s/0/758cdb4c-5b72-11e3-848e-00144feabdc0.html#ixzz2oenjBCF3 – may be read after free registration

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* Robert rather than Michael Oakeshott?

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