Stakeholder banks have both social and financial objectives, and make a major contribution to financial stability, local economic development, business lending, and financial inclusion. Banking policy should explicitly recognise their role as distinct from that of commercial banks, and aim to promote and preserve them.
We surveyed data from 65 countries to identify successful alternatives to commercial banks, which we define as banks that have the main objective of maximising shareholder value. Four distinct forms were identified: cooperative banks, credit unions, community development finance institutions (CDFIs), and public interest savings banks. Their common characteristic is the goal of creating value for stakeholders, not just shareholders. Several trends emerge across all four types of bank:
Criticisms that stakeholder banks are inefficient and distort competition are found to be unconvincing. However, lack of access to capital is a constraint on growth, and there are lessons to be learned from those institutions that failed during the financial crisis.
“We recommend that banking policy explicitly acknowledges the benefits of banking diversity — including to global financial stability”
We conclude that certain factors are critical to the success of stakeholder banks:
We recommend that banking policy explicitly acknowledges the benefits of banking diversity – including to global financial stability – and seeks to nurture a vibrant stakeholder banking sector.
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