21 Mar 2013
This report builds on a previous ILO report from 2009, "Resilience of the cooperative business model in time of crisis", which highlighted the ways in which co-operative enterprises have shown resilience to the crisis across sectors around the world.
The author of the report, Professor Johnston Birchall, said the crisis has proved that financial co-operatives were less likely to risk as much as PLC banks particularly because their managers did not receive a share of the profits. “Stability and the aversion to risk are built into the DNA of financial co-operatives,” he said.
Mr Birchall explained that although they do not have the same 'ups' as other banks, financial co-operatives do not have the same 'downs' either, thus they are more sustainable businesses.
“In credit unions, in other parts of the world, you can see that they didn’t even face a drop in 2008. They didn’t notice the banking crisis; they just kept on growing slowly, regularly, not dramatically,” he said.
Co-op bank assets grew by ten per cent between 2007 and 2010; and co-op bank customers grew by 14 per cent. Most of the financial co-op losses were made up within a year or two.
Co-operative banks in Europe have come out of the crisis without being severely affected. According to the report, seven of them are in the top 50 safest banks in the world, and across Europe, they exceed the minimum legal capital ratio requirement of eight percent, with an average ratio of about nine percent. In Germany and Austria, co-op banks remained faithful to a conservative business model of just serving their members, thus the crisis had little effect of them.
In France Crédit Agricole, Crédit Mutuel and Banques populaires received loans from the government in October 2008. However, by early 2010 Crédit Mutuel and Crédit Agricole had repaid their loans, and all three groups are now growing again. In the Netherlands, Rabobank was the only large bank that did not need government support. Co-operative banks across Spain and Italy have been damaged more by the wider economic crisis that was triggered by the banking crisis.
According to the ILO report, the banking crisis had a severe impact on Africa. Nevertheless, between 2007 and 2010 savings grew by 34 per cent, and loans by 37 per cent.
In North America, credit unions recorded an increase of 23 per cent in terms of saving, between 2008 and 2010, with customers choosing co-operative banks rather than PLC banks. Savings have also increased in Latin America and Asia.
Furthermore, according to the ILO report, countries where the co-op banking model is strong have proved to be less affected by the crisis than countries where the model is absent.
Financial co-operatives invest in local economies, lend to SMEs, provide people with low incomes with banking services they would otherwise not be able to access and bring diversity to the banking industry.
The report also explains that financial co-operatives help to prevent the danger of monopolistic supply by moneylenders, correcting market failure. Financial co-operatives also prevent conflict of interest between owners and customers because customers are the ones that own the business. Most importantly, they provide no incentives to risk-taking because they are not under pressure to maximise profits.