Capital and The Co-operative Bank

23 October 2013 | Advocacy, News

Tragedy. Disaster. Just two words that have been used to describe the recent events at the Co-operative Bank. Whilst the Treasury Select Committee continues its questioning of the Verde deal and the Kelly Inquiry deliberates on wider issues, the Bank’s ownership is changing, probably irrevocably.

We need to be able to look beyond the immediate events to fully understand the situation. It is fair to say at this stage that the financial crisis has caught up with the Bank – assets going bad and a greater regulatory drive for higher capital ratios are two key features of this. And whatever else is going on, this will always cause problems for mutually owned firms.

The fact is that the parent Co-operative Group simply does not have sufficient capital to inject into its subsidiary, and this brings us to the heart of a major weakness in UK co-ops. Without a tradition of member investment in attractive shares, our co-operatives will always be short of options. This is why Mutuo has brought forward the Mutuals’ Redeemable Shares Bill – our co-operatives need to be able to issue shares that give flexibility to the business and are rewarding to the member, without undermining mutual ownership.

The European co-operative banking sector relies heavily on such types of shares, and has for the most part been able to count on this crucial additional source of capital. It is one of the reasons why they have such a sector at all, and we do not. In order to build stable capital bases, we need to be able to offer shares that are not withdrawable, but can be redeemed by the co-operatives themselves. It is too late for our Co-operative Bank, but we need to take action now to make sure that we can strengthen co-operative capital.