Cooperative Banks

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Marjorie Kelly:

"Bain Capital is a great proxy for extractive enterprise in general. The way it and other private equity firms function is straightforward. They buy up companies, load them with debt, cut expenses (read: wages and jobs) then sell the companies off -- all the while, extracting enormous fees for the owners, people like Mitt. This is extractive finance.

To see a financial enterprise that's generative in its intent, I turned to the bank down the street in Salem, Mass., Beverly Cooperative Bank, where I do my own banking. This is a bank with $300 million in assets and four locations, all of which I could reach in a single afternoon on my bike. It's a bank, in other words, rooted in a single community. It's a mutual bank, a cooperative bank. That means its owners are not a handful of wealthy Wall Street types, but the customers it serves. The purpose of this bank is to serve its community. (Why else do we even allow financial firms to exist?)

Cooperative banks are found all over the world, and in Europe they hold 20 percent of all deposits. These banks avoided the shenanigans of the big banks. But these and other generative banks -- like the nation's 7,600 small, locally owned community banks -- are now under siege because of the misdeeds of the big banks.

Bill Howard, president of Beverly Cooperative Bank, told me recently that new banking regulations designed to make up for the misbehavior of the big banks are inadvertently crushing small banks. "There are 8,000 banks in this country today," he told me. "In the next five to 10 years, we'll have maybe 5,000 left."

At one time Beverly Cooperative Bank paid $26,000 a year to the FDIC (Federal Deposit Insurance Corporation). But after the fund was depleted by rescues of reckless banks, Beverly Cooperative had to pony up $1.15 million in a single year. That's a big check to write. Going forward, Beverly Cooperative will pay around $200,000 a year. That's despite the fact it had few mortgages go bad: fewer than five in the last three years, out of 800 loans.

As the president of Beverly Cooperative, Bill Howard could have done what a lot of similar small-bank presidents have done: sell their companies to the big Wall Street banks, and pocket a load of cash for themselves in the process. He chose not to do that. "The culture of a bank is different if it's a mutual," he told me. Instead of having to worry about stock analysts demanding higher returns, he can focus on his mission of serving the community.

His philosophy is summed up by the Robert Fulghum poem he keeps framed on his desk, "All I Ever Needed to Know I Learned in Kindergarten." "Play fair," it says. "Clean up your own mess. Don't take things that aren't yours." And "no matter how old you are, when you go out into the world, it is best to hold hands and stick together." That's the spirit of generative enterprise." (