 |
| "My people will dwell in a peaceful habitation, in secure dwellings, and in quiet resting places," Isaiah 32. 18. |
Within the modern-day concord of economics, the concept of a mutual-savings bank is one not often heard. It has been relegated to the pages of economic history and largely forgotten. Despite this, it is worth noting that during the latter-half of the nineteenth century and in the first quarter of the twentieth, mutual banks had enjoyed a period of relative strength and security against economic downturns akin to a tidal wave, destroying asset wealth in the millions. Those who took the bigger risks upon the stock market are those who gambled and, in some senses, lost everything. The very structure of the mutual bank is what enabled its resilience and capability in preserving the dignity of its members' financial security against uncertain market forces. People's wealth was safer in those hands. With this in mind, we should ask, Why do the mutual-savings banks no longer exist?
The short of the story is that they were out-competed by stock-banks, i.e., banks which are owned and largely operated by stockholders and investors. The predominant reason behind this is that they were able to offer more attractive interest rates against savings by delving into riskier portfolios within the stock market; this seemingly straightforward appeal came with the condition that the higher interest reward from saving was hinged much more upon the fragility of the stock market. The main driving force, of course, was the payouts which high-yield equity could provide to the bank's main stockholders. One of the biggest problems with this model, however, is that it produces a conflict between stock-holders, on the one hand, and debtholders, on the other; shareholders have the incentive to opt for riskier investments,— bolstered predominantly by the money invested by savers,— whilst debtholders have the tendency to prefer a balanced return on their savings— one that is not conservative or risky. A collateral phenomenon of this conflict is potential toward monopolisation, too: stockholders can not only compete to purchase diffused shares in the bank itself, but, by holding the vote over managers, are able to dispense of them with relative ease according to their portion of ownership over the bank.
Nevertheless, as the wealth of the stock market increased, so too did the wealth of the stock-bank and the attractiveness of its offers to regular savers; a higher turnover meant a correspondingly larger amount to compound and reinvest— &c. This is largely the result of a gradual globalisation of finance, which opened investors to more lucrative foreign markets, be it in developed or developing economies. At the same time, major economies witnessed the widespread replacement of "hard" currencies— which were usually backed by gold- and silver-standards— with the "fiat" (i.e., paper currency backed against itself) currency; again, a new turn is occurring with the increasing involvement of automation and electronic credit. This recent turn can have both advantageous and negative connotations. Undoubtedly, this has lead to the situation witnessed today amongst major countries; i.e., it is an inescapable fact that most economies now consist of a delicate and dense network of finance, supply lines, and debt, all of which run across transnational lines. An exemplary case is that it is easy for anybody to open a portfolio that invests predominantly in foreign markets, for instance; whilst this is not a criticism of stock markets, it is an observation of the nature of modern finance. Owing to this, any investments made today are generally hinged upon a reliance of exponentially-increasing wealth and turnover, despite the historically cyclical nature of up- and downturns in market forces; with it, the corresponding danger of eviscerated wealth should the market fall into another deep recession— and stock-banks, although somewhat protected, are not fully exempt from this danger. As they expand into this international finance network, the danger increases.
To what am I alluding? In short: that a form of a citizen's mutual bank is, in my opinion, a much better way of offering good, reliable, and safe saving and loan opportunities to the vast majority of people in Britain. It stands in stark contrast to the structure of the stock-bank, noted above, and therefore is not necessarily open to the predations of high finance, as it does not balance nearly so much of its turnover on a stock market. Historically, they had proven themselves safer during recession than their stockholder-owned counterparts. The reasons for this will be elucidated in further parts to this general essay, although for now, it satisfies to focus upon one key point: their conservative nature.
The way in which a mutual-savings bank is designed necessarily facilitates conservative investment— i.e., that which, for the most part, offsets the risk of the stock market. It is designed to the primary benefit of savers and small loaners. This is done via an internal network of structures that prevent capital concentration, risk-taking and speculation, and instead local trade and exchange. By this nature, finance is kept small and more secure. There is one most noticeable difference in respect to the stock-bank structure, noted loosely above: mutual banks have only one type of capital provider,— the depositor,— and thus the manager has a responsibility to them, primarily, rather than to the interests of the stockholders in opposition to the debtholders. This does mean that, generally, interest rates are lower; however, I argue that this is most beneficial for everyday savers, business and agrarian loans, and mortgages in the other essays following this one; it offers more stability, accountability, and is generally better suited to regional development and finance management, going hand-in-glove with federalist political principles.
There are a multiplicity of reasons behind this modus operandi, which will be explained in turn with proceeding essays that follow up to this brief introduction. They will cover four key components: (1.) the nature of the bank itself in more detail, (2.) the nature of depositors and their rights, (3.) the nature of management and their rewards, and (4.) the way in which it can better offset the risks with taking loans. These will cover both the mutual-savings bank and their cooperation with mutual-credit unions, both of which can operate simultaneously and upon a regional, decentralised network.
The purpose of exploring these seemingly-forgotten financial institutions is with the intention of shedding light on social and economic policy which can direct itself to the benefit of societal foundation— i.e., the family, property, self-employment, and the local community; this will undoubtedly snowball to a wider benefit of flexibility according to local and regional business and land variables. These core institutions, as they once were, should restored to the heart of sincere Christian social policy.