A Fascinating Way to Deal with Failed Banks

Gareth Thomas, head of Co-Operative Party in the UK, authorities turn Royal Bank of Scotland into a cooperative, where it would owned by its customers:

Every month there are new headlines about the Royal Bank of Scotland’s wrongdoing. The chief executive, Ross McEwan, puts the best spin on things, but his bank is still failing; most recently it failed the Bank of England’s stress test. Trying to privatise the bank hasn’t worked and state ownership hasn’t been a rip-roaring success either; but worse, its very size and dominance means together with the other big banks it is stifling competition. Now is the right moment for a different approach.

Together as taxpayers we saved the Royal Bank of Scotland – now we should each be allowed to own it. It should become a people’s bank, which every tax-paying British citizen would have the right to become a part-owner of.

The Royal Building Society of Scotland, with an iron lock on its assets, would be a final, decisive break with the Fred Goodwin era. It would conserve the strength and credibility of one of our major financial global players while injecting a much needed dose of competition and diversity into British banking.

More than £45bn of taxpayer funds have been injected into the Royal Bank of Scotland. This was the right thing to do, but neither keeping it as a state bank nor a fully privatised bank offer the same advantages as turning it into a mutual. Its sheer size means it risks being captured again by narrow shareholder interests or those of its senior executives, or both.

As an FYI to those who do not know what the Co-Operative Party is, it is a political party that is closely affiliated with Labour, their MPs are listed as "Labour Co-Operative", and they and Labour do not field candidates against each other.

The party has as its goal supporting and creating cooperative enterprises, as opposed to Labour's (nominal) focus of organized labor, so his proposal is certainly in accord with his party's platform, but it has a lot of merit.

The alternative is to sell off the assets on the cheap, or sell them to another bank, which increases concentration and systemic risk, and neither of these alternatives come close to fixing the underlying problems.