The question of how socialists should challenge the banking system has often been limited to new state run lending institutions and while these are welcome developments the left have not offered an alternative for the everyday banking needs of citizens. In our current economic system, credit is necessary, but so are potential democratic solutions for everyday banking. Credit unions and cooperatively owned banks should be looked at more.

Co-operative banks have their roots in working class emancipation, and in particular migrant communities who had to develop their own infrastructure to exist. The first coop was developed by German farmers in the 18th century and the first credit union in the UK was started by Afro-Caribbean migrants in 1967. Though still a minor section of the domestic banking sector, in the last decade the co-operative banking sector has grown dramatically with credit union membership increasing from just over 650,000 members in 2008 to just under 2 million today. This is a resource that we can, and should tap into.

The role of co-operatives is rarely explicitly anti-capitalist and indeed they are a crucial part of many economies in the global north. In Germany they account for 17% of total bank assets, and are often credited for Germany’s swift recovery from the Financial crash of 2008. The UK has a more limited atypical banking sector. The most well-known co-operative bank in the UK, the co-operative bank, is confusingly not a co-operative bank, it is a commercial bank owned by a number of co-ops. However, the U.K does have a legacy of cooperative building societies in specific niches. Nationwide provides a successful example of a co-operatively owned institution which although not resisting commercialisation, did successfully resist demutualisation, maintaining 15 million members and a profitable asset book in direct competition with other high street banks. There is also an increasing number of credit unions, which have membership now equal to loan shark lenders for offering low income lenders access to debt.

In spite of this pressure leading them to act largely as traditional banks, the form their organisation takes - for cooperatives being run democratically by its members, not shareholders with credit unions adding an additional features through the requirement that they are based “common bond”, such as profession, religion, region etc does have potential and maintains benefits even as competition shapes their practices. This is not simply an organisational feature, over the past few months I have been speaking to Ralf W. Barkey, CEO of Genossenschaftsverband, Germany’s largest cooperative auditing association which represents about 380 cooperative banks. For him this was a central feature of how they should operate: “Cooperative banks maximise member value instead of shareholder value. They are democratically controlled. Therefore, the local and regional cooperative banks in Germany focus on supporting their members”.

This has several advantages. The first of which is simply ownership by workers, not capital. If Lloyds had been a co-operative bank in 2017, 30 million customers would have shared out £4.4bn billion in profits, rather than its dividends going to shareholders. Though to survive they may be beholden to typical corporate pressure to maintaining profitability and competitiveness in a wider capitalist economy, ownership is not something that can be ignored and if properly managed could be hugely impactful in ways state investment and ownership simply would not.

One key element of this, for example, was the protection they offer during crisis due to the maintenance of their assets independently from the global financial system. The failure rate of US credit unions at the height of the financial crisis between 2008 -2010 was around 0.3%, 5x lower than that of corporate banks. In the 80 year history of German co-operative banks, not one has gone bankrupt, and countries with smaller co-operative banking sector generally fared worse in the financial crisis and subsequent recession due to lack of available credit.

Combined with their ability to resist pressure in global financial markets, these banks can also structure post-recession investment in a way which directly focus on the problems of its members:

Because of democratic control and their focus on value creation for members, cooperative banks have strong incentives to support regional economies not just during upswings, but also during economic downturns. At the peak of the financial crisis, the cooperative banks were the only “pillar” of the German banking system which significantly expanded business lending. At the same time, the German cooperative banks were the only pillar of the banking system that didn’t need a government bailout during the financial crisis.

The scale of this could obviously be problematic, as it may result in limited resources in communities which can’t save in the first place if we only think of this at a regional scale. But the advantages of fighting fires in a community - if combined with scale - could be a potential tool for building a more sustainable economy, or to at least pay attention to the problems in underdeveloped areas. For example matching the needs of struggling northern communities who corporate investors judge as lost causes.

Their also may be a need to go beyond a current key focus on small businesses. This has been a central plank of the benefits that co-operative banks create in Germany. Their cooperative banks share of all loans in Germany is 17%, but the share of loans to SMEs stands at 28%. Research from within the EU shows that SMEs perform better in countries with large cooperative banking sector and suggests that they loan to SMEs with lower costs, with a particular emphasis on providing capital often not available to others. Though this can often mean lending to entrepreneurs, the stability and discipline that co-operative banks face means they can also help supporting burgeoning firms with alternative models of ownership.

Though welcome, a greater focus is needed on consumption as well. In the absence of significant changes in production it’s likely that workers will continue to need advances on their savings through debt to purchase many key items for everyday consumption - from homes to automobiles. Here cooperative banks have a distinct role in being able to provide low cost debt due to their ability to survive on the lower margins from this lending without a substantial need to continually push consumers into further debt.

Unfortunately, the Labour Party’s current approach does not currently recognise this. In their report “A new public banking ecosystem”, system co-operative banks are mentioned just once, and they are not mentioned at all in Labour’s manifesto. The focus instead has been on new regional investment banks, but this may only offer new investment focuses and wont change the role finance plays for most workers. To change investment patterns, ensure a sustainable banking system, harness the profits of banking for all and shift our economy to a more just and democratic alternative we need more than a handful of state controlled banks.

The potential for co-operative banks to play a role in everyday financing, somewhat apart from the global financial market and with a greater space for democratisation is clear. But we need to ask why they are now longer a key plank of the socialist movement. When Extinction Rebellion protested outside Barclays in May the move was welcomed, they spoke of radical banking alternatives to the corporate climate change supporting bank, but if they actually want to see change, how would it operate and how would new impulses be integrated?

In part many changes in this direction may end up regulatory in nature, which is why it is often ignored compared to the more obvious benefits of more state funds for disadvantaged groups promised by other types of banking alternatives. Ralf Barkey says that _“Left-wing political groups should acknowledge that cooperative banks can only adhere to their core cooperative values when governments create a fair regulatory framework.”

In the UK a fair regulatory framework means levelling the playing field between co-op and corporate banks and providing a “regulatory framework which doesn’t overburden smaller low-risk credit institutions with bureaucratic requirements”. He stressed they have no need for a public subsidy and that the grassroots of the Labour Party should think about building the membership of credit unions and co-operative banks while improving regulatory framework. Barkey does welcome hostility to corporate banks saying: “they (the left) need to prevent large privately-owned listed banks from distorting competition by becoming too big to fail.”_

Debt has been part of our economic system long before the first banks existed but in the age of financial dominated capitalism and vast, globalised production networks, it is more important than ever. We are bound to the will of capitalism by debt and we have no chance of being liberated from its bondage while such a small percentage of the population control our financial interests. Co-operative banks therefore are not just a way to transform our economy to be less corporate and more sustainable but a vital tool in delivering democratic socialism.

This nation needs a banking sector for the many, and co-operative banks can provide that.