Breaking up the banks, going mutual… and forgotten Conservative Co-ops

What to do with the banks is set to be a significant post-recession battleground, with the Conservatives already looking towards relatively straightforward privatisation.

To be fair, they have pledged to break the banks up. That would at least introduce some much needed competition to the sector and spread the risk should things go wrong, but it lacks imagination and is fairly obvious.

Real innovation and new thinking is coming not from the opposition, but the government with Alistair Darling expected to back mutuals. While the mutual sector has not been immune from the credit crunch, the Co-operative Bank has continued to grow its profits and our remaining mutuals have proved far more stable than the PLCs.

Of course, if David Cameron’s Conservative Co-operative Movement had been for real, the Tories would have got here already.

According to the FT, Michael Stephenson, general secretary of the Co-operative Party, a Labour Party affiliate, backs a new large mutual formed from a merger of Northern Rock and Bradford & Bingley.

But there is no reason to create giant mutual institutions. When the time is right, we should break up the banking sector and create a diverse range of institutions, some of which may be PLCs, but many of which should be mutuals based on the traditional building society, co-operative and credit union models.

Such diversity would create a more competitive, yet fairer, banking industry for all and reduce the risk of a future calamity.

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