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Mutuality is good for customers and financial stability: 7th EACB Convention

Coincidentally, the day before Article 50 was triggered we found ourselves in Brussels.   This visit was not Brexit related - although the subject may have come up.  Our purpose was to join with the family of mutual, co-operative banks which exist all over Europe, at the 7th Convention of The European Association of Co-operative Banks (EACB). 

The BSA is an associate member of the EACB, and whilst building societies might not technically be co-operatives, we all have mutuality in common and share basic principles about how we do business. 

There are a whopping 4,050 regional and local co-operative banks across Europe: some are organised as large integrated groups, like Rabobank (Netherlands)or Crédit Agricole (France) others as looser federations like the Volks-und Raiffeisenbanken (Germany).  OP Financial Group for example is the largest bank in Finland.  All embody the core values of proximity and solidarity.

Together they serve 210 million customers; have almost 80 million members; 59,000 branches and around 750,000 employees. They serve both economic and social needs; their members drive decision making and they are orientated to the long term.  Described by some as an anchor of stability, they are “dual bottom line organisations¹”. Profit is not the ultimate goal but a means to accumulate capital, absorb shocks, to invest and to innovate.  Alongside this profit is also needed to realise societal goals.   

In terms of growth, they have shown steady growth in market share, member numbers grew by 1.6 million in 2015, the most recent data available. Branches maintain proximity to customers and members and networks have grown as a proportion of the whole market as other have reduced their branch footprint.

A number of the senior speakers at the Convention agreed that the mutual business model provides valuable biodiversity into the financial system and that this is good for customers and financial stability. 

Andrea Enria, Chairman of the European Banking Authority (EBA), expressed the view that the most important contribution that the co-operative banks make is this addition of diversity into the financial system. Banks who react differently and have different time horizons add to stability.

There was concern from Gerhard Hofman, President of the EACB, that regulatory forces are pushing all banks in the same direction, risking the creation of homogeneity when it is diversity that is needed. These forces also lead to disproportionate costs and regulation and risk impeding capital growth.

Proportionality for the sector is key and Klaus Wiedner for example, Head of Unit Bank Regulation and Supervision, DG FISMA at the EU Commission, is of the view that proportionality plays a role in relation to disclosure and reporting. 

Similarly, Jukka Vesala, Director General, Micro-prudential Supervision at the European Central Bank (ECB) favours a single reporting framework to avoid the risk of national fragmentation. BUT looks to simplify reporting, for example, having fewer key risk indicators for smaller entities.

Despite the UK’s two-year exit process from the EU now being underway, much of this mood music on regulatory reporting is welcome.  Here’s hoping that these positives take effect before the UK gains third country status.

¹Snapshot of European Co-operative Banking 2017, Professor Hans Groeneveld, Tias School for Business and Society at Tilberg University, The Netherlands. 

Posted by Hilary McVitty on 03 April 2017