Are you puzzled or upset or angry by the CBC’s recent Go Public revelations about banks serving their investors at your expense? You need to ask, ‘What is the purpose of a bank?’ It is not to provide you with financial services or good advice. The purpose of a bank, the reason it was incorporated, was to maximize the return to shareholders. Anything it does is done to achieve that purpose. In this particular instance the reason we know about what lengths banks will go to is that many people who work in them are good decent people. You need to understand the banks will pay them as little as possible and pressure them. They will replace them with cheap off shore labour if possible.
How do big investor-owned companies maximize their profits? They cut the cost of supplies by getting them at the cheapest possible prices regardless of how the supplier treats his workers. They pay workers as little as possible. They maximize their income from your bank fees. They sell products that are best for profits – not for customers. When a bank does any of these things, it is simply doing what its investors created it for. This is why you see so much destructive behaviour from banks and other investor owned firms. Remember as well that millions of Canadians have pension funds regulated by government. The regulator, and pensioners, demand that those funds seek the highest possible return. They are seriously discouraged from ‘ethical’ or ‘socially responsible’ investments.
But don’t banks do ‘good things|’? Clearly they do but they will do ‘good’ only if it is profit neutral or adds to profits, or, if a person with enough decision making authority decides to do the right thing. The banks have many, many good people in them as the CBC has discovered with Go Public. It is the structure that creates the pressure to do whatever is necessary to maximize returns – that, and the desire of CEOs and senior managers to be able to say ‘their’s is bigger than the next guy’s’. As KPMG, the Dryden Power and Timber, Loblaw’s Joe Fresh, oil companies, rail companies, countless junk food companies and thousands of other examples recent and past show, the investor owned company is a flawed idea. It does not serve the best interests of society because it is very prone to anti-social behaviour.
There is a difference between a family doctor’s business and a huge investor owned corporation like a bank or Shell oil. Doctors and family businesses are not driven to serve investors. They have multiple bottom lines. They want to feed their families, treat workers well, contribute to the community, etc. Not all of them are angels but as a group they generally share these multiple objectives and want to treat people fairly and expect their colleagues to do the same. Large investor driven companies expect the worst of their competitors and, as the calls to CBC from all the big bank’s workers show, they match their behaviour so they will not fall behind in the profits race. Don’t confuse all business with big investor driven business. Small family businesses, social enterprise and co-operatives are very, very different.
We are told over and over that Canada does such a good job regulating banks. But let us revisit 2008. Clearly the regulator has been looking the other way lately. The shameful treatment of workers and customers went unnoticed. Worse, when the story exploded the regulator’s spokesperson said, “In very serious violations we could even name the company.” Now that statement surely did not make bank CEO’s shake in their shoes. The problem with big and increasingly bigger companies is that they undermine democracy. Regulators increasingly act on behalf of the companies rather than citizens. The regulator talks to the companies, senior bureaucrats meet with them, prime ministers meet with them, their lobbyists crawl all over government. More important they have economic power. If governments do not do their bidding companies can cause rising unemployment. No government wants that. Banks can stop lending as they did post 2008 slowing the recovery.
Remember the 2008 collapse in the US which led to a global collapse and arguably millions of deaths globally? What caused it? It was US banks selling bad loans to people who could not meet the payments, and then packaging the worthless mortgages as clever investments. Our regulator should have been all over the current mess which includes bad loans, and risky credit cards and lines of credit. What happens when the bad loans cannot be paid? When the bad lines of credit cannot be paid? When the ill-advised credit card debts cannot be paid? How big is the bubble?
But people ask, including the CBC, ”What alternative do we have”? The real questions should be: “What if people in each community and region owned the bank they used?” “Would it ‘up sell’ to them?” “Fiddle them on fees?” “Talk them into loans they could not afford?” “Would it loan their hard earned savings out at high risk?” Clearly it would not do so. Such behaviour would not be in the interests of its owners.
We do have an alternative! We have financial institutions called credit unions and ‘caisse populaires’ in Canada and some other countries and co-operative banks elsewhere. They provide a wide range of financial services but seldom make loans people cannot pay. I do not have a single cent in a bank. I left banks when I was in graduate school and the Bank of Nova Scotia bounced a cheque that was a few dollars short even though a savings sub account had thousands of dollars in it. They charged a ‘bounce fee’ and so did the university. Said the bank manager, “This is a good learning experience for you son.” It was. I never dealt with his bank again. I moved to a credit union.
So are credit unions the perfect solution? Nothing in this world is perfect. But I am confident in saying they are better than investor-owned banks. The investor-owned structure is one that, in the words of Arthur Anderson accountant, Ralph Estes, ‘makes good people do bad things’. The credit union/co-operative bank structure is one that pressures people to do the right thing. Its purpose is not to maximize the return to some absentee investors but to provide members with financial services. The people who use it, own it. If it miscalculates and charges them too much the members get it back at the end of the year. There is a set of values and principles that come with being a credit union. It is this different purpose combined with the values and principles that exerts a pressure on the board, elected by the members (on the basis of one person one vote) and on management to do the right thing.
Do they always get it right? No. Alas, they are human. Running a co-operative requires a different ‘business culture.’ When you are surrounded by a dominant capitalist business culture, that is a challenge. The goal is to ensure a financially sound business that is capable of meeting member needs as opposed to figuring out how to skim a buck off everyone who comes in contact with the organization so you can enrich an absentee investor.
So there is an alternative. Credit unions would welcome new members and especially welcome former bank workers who are sick of being bullied, harassed and fired for not taking advantage of their customers.