Alan Clawley on the hypocrisy of bank bail-outs.
The government is keen to tell people who have been ripped off by loan sharks and payday lenders that credit unions are an alternative way of saving and borrowing. Birmingham city council has joined in the chorus of approval and hinted that it is ready to help. In the meantime, most of the small community credit unions that were founded in the city with state help during the 1990s have collapsed leaving the council’s in-house credit union Citisave in a dominant position.
The community credit union that was founded by and for residents of Small Heath of which I am a founder member and treasurer, survives without any support from central or local government only by dint of a dedicated team of volunteers and help in kind from a church and a sheltered housing scheme. The credit union’s principal source of income is the interest that members pay on loans. To balance the books, overheads are pared down to the bone.
Some help would have been welcome. In 2009 when the government was throwing millions at the failed banks that were deemed too big to go under, I wrote to Gordon Brown, somewhat tongue-in cheek; “‘The financial difficulties of the large banks are well known but we too face difficulties that may be small by comparison but which are very serious to us. The bank that holds our current account has been very helpful in stopping the charge for our current account but we no longer earn interest on it. Our reserve bank account will also produce less income for us while interest rates are so low. The other matter is loan defaults. Our members have a very good record of loan repayments and our credit control procedures normally work well. We have a cautious loans policy and take care that loans can be realistically repaid in the period agreed. Despite our best efforts we have had to write off some loans and this has meant that the members cannot have an annual dividend. In the past we have been able to offer 2 percent on shares. Would you consider helping us to put our balance sheet in order and thus encourage our members to save as well as borrow?”
I never had a reply from Mr Brown. No help of any kind has since been offered by the government despite the Archbishop of Canterbury’s anti-Wonga intervention.
So what kind of help would be useful? Amazingly, the credit union pays corporation tax on its profit. However that is small beer compared with the stiff regulatory fees and the cost of the annual audit that must be carried out to demanding accounting standards by a registered auditor. Together with fidelity bond insurance, these charges eat up nearly all of our annual income.
For a mutual, community-controlled financial enterprise with assets of £150,000 this strikes me as over the top. We could almost regulate ourselves as we are so close to our members that they will soon tell us if things are going wrong. On the other hand the distant officials in the Bank of England who scrutinise our Quarterly Returns for arithmetical errors will never act even if they see trouble ahead.
Herein lies the paradox. Big banks have crashed despite being regulated but were deemed by government to be too big to fail. Community credit unions have also failed despite being regulated but the government isn’t bothered if they fail. It isn’t surprising then that everyone wants to be big despite the evidence that big is not always best for customers. Perhaps TSB’s poster campaign proclaiming that it is bringing back ‘local banking’ at least suggests some recognition of this truth.
