Big Society? How about a 'Big Economy'? More mutuals could offer us greater diversity and more choice.
For 127 years, the Coventry Building Society has quietly got on with its business of being a mutual lender, enabling many people in Coventry and the region to achieve their dream of owning their own home, while offering good rates for savers.
This mutual approach delivered superior financial performance and value for members through the recent financial crisis. And unlike some other mutuals, like my own West Brom, the Coventry avoided getting sucked into dodgy commercial property investments.
Without many of us realising it, the Coventry has grown from being a local success story to becoming something of a mutual powerhouse. With 1.5 million members and over Â£21 billion in assets, it now ranks as the third biggest UK mutual.
Last month the Society recorded its best ever results with profit before tax for 2010 of just over Â£100 million. It accounted for some 17% of all mortgage advances by building societies and mutual lenders and 18% of all net mortgage lending in the UK.
Its retail savings balances rose (organically) by Â£2.2 billion - as compared to a Â£1.4 billion fall in the savings balance for NS&I and other banks and building societies.
This market success was underpinned by class-leading efficiency (with the lowest cost to mean asset ratio reported by any UK building society at only 0.37%) and a commitment to important social causes. The Coventry also took on staff throughout the recession, unlike many other players in the financial services sector.
And unlike the profit-driven plc banks that were too-big-to-fail, the Coventry and other well-run mutuals offer us other insights as to how diversity in the financial sector can benefit all of us and not just the society's own members.
That's because a diversity of ownership types and business models can in turn help ensure diversity in corporate governance, in the risk appetite of banks, in incentive structures and bonuses, in policies and practices, and in organisations' behaviours and outcomes, as Professor Jonathan Michie (of the UK's Commission on Ownership) has consistently pointed out.
In other words, having a much bigger, more vibrant and well run mutual sector can offer a bulwark against financial contagion, especially when big shareholder-owned plc banks dominate and unbalance our financial system. Those big plc banks aimed to maximise financial returns for their owners (shareholders) - but ended up costing us all huge amounts in a taxpayer funded bail-out when their toxic 'assets' brought them down.
Fostering such diversity is what I'd like to see as part of a wider set of reforms of the banking system. The Independent Banking Commission unveiled its interim report earlier this week and most attention focused on whether there was an effective separation of casino investment banking from the utility banking that we all depend on.
Like John Clancy in his excellent blogs here at the Post, I'm very sceptical that the Commission has actually delivered on this. I also feel that a much more profound set of reforms are needed to inject greater competition into the banking industry. That will need much more than just getting Lloyds to sell off some branches. After all, that simply gets us back to where we were before the crash, and will do little to reduce the risk of failure or to offer much more choice for consumers.
Rather, I'd go much further, with a greater commitment to having more diversity, with plcs spilt up, and with plcs, mutuals, and even state-owned banks all competing for our business - thereby giving us more choice.
The sad fact is that mutuals have been severely weakened over the last 25 years. Whilst it was a Thatcherite 1986 law that enabled demutualisation, Blair and Brown stood by after 1997 and witnessed continued carpet-bagging. The previously rock-solid Northern Rock, Bradford & Bingley, and Halifax were all demutualised from 1997 onwards.
Look where they ended up: in government ownership as part of the taxpayer-funded rescue of the banking system. The Government, having turned the Treasury into the world's biggest hedge fund, eventually wants to sell off the banks it nationalised. But if it sold them off to plcs, this could well reduce the real amount of choice for consumers even further.
So, if the coalition government is genuine about avoiding another banking crash and fostering more competition, it needs to put its money where its mouth is, and demerge parts of the nationalised banks' retail businesses and set up new mutuals like the Coventry. It could start by setting up a New Halifax, a New Bradford and a New Rock.
In fact alongside a 'Big Society', why don't we have a 'Big Economy' where we expand the role of mutuals in the broader economy? In the banking system we should encourage much greater organisational diversity and see which come out best.
It would mean different corporate forms (PLCs, mutuals, and state-owned entities) slugging it out for customers - both households and businesses (think of the Black Country Reinvestment Society, for example). Consumers would have more choice and better service. Now that sounds like real competition.
So news that the Coventry is tentatively considering a bid for the 'Good Bank' part of Northern Rock plc should be welcomed. I'd still prefer Northern Rock simply to be re-mutualised, rather than being sold off to raise money for the government. But failing this, having the Coventry come in as a potential buyer could still strengthen the mutual sector and enable some decent competition to the plcs to emerge again.
That, after all, should be a key plank of policy for our financial system.
Professor David Bailey works at Coventry University Business School