05 October 2016
Customer owned banks (credit unions, building societies, mutual banks) do not have shareholders. They have members.
To be fair, the issue of how an interest rate cut flows to mortgage rates is not as simple as just passing it on. The size of the bank, the cost of capital to the bank, current profitability; all play a role in a bank’s decision about how much of a rate cut to pass on. These factors apply no matter what type of bank we are talking about.
But why we should expect and why we saw more customer owned banks passing on the recent rate cut is down to one thing – ownership.
As the chief executives in front of this week’s bank inquiry are at pains to point out themselves, big banks struggle to manage the tension between their owners, the shareholders, who quite reasonably expect the bank they own to maximize their returns, and their customers who quite reasonably expect the bank they do business with, to do the fair thing by them. But why would a bank do that when it’s a direct hit to the bottom line and shareholder profits?
In a customer owned bank, it’s different. The customer and the owner are one and same. Mutual banks are free to do the right thing by their owners knowing it’s also the right thing by their customers. A stakeholder ‘nirvana’ a big bank CEO can only dream of.
Mutual banks have a business model that allows them to make a profit that is reasonable to run the business well and to be a safe, reliable business, rather than a business model that legally requires them to maximize profits for shareholders. They also have a business model that allows them to make decisions that are fair for all their customers. They are able to balance needs equitably and they are transparent about it.
A mutual bank can make a rate cut for example, even if it means a hit to the balance sheet because the bank doesn’t have to pass profit along to shareholders. As long as the long term sustainability of the bank is protected and it doesn’t hurt other members who don’t have loans, mutual banks will always maximize the benefit to customers. They are their owners.
Amidst the hand wringing and gnashing of teeth about bank culture this week there’s an obvious choice that is often overlooked. And that is, there is a choice. In fact Australians are spoiled for choice. There are 83 credit unions and mutual banks that Australians can choose to bank with to start with. We would all have a lot more to complain about if this was not the case. So, do yourself a favour and vote with your wallet. Switch to a bank that has your interests at heart.
#switchnotbitch
Where can I find mutuals to switch to?
Canstar
COBA
Members Own Health Alliance
BCCM members
What is a co-operative or mutual?
BCCM pusiness planning
The Co-operative Group (UK)
About mutual banks in Australia
COBA
Videos
What is a Co-operative?
The Difference between Banks and Credit Unions: Part 1
More information
www.bccm.coop
www.ica.coop
Image source: picturesofmoney.org
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