Common Good Bank made the front page of the Clean Yield investor newsletter this month (see below). We have, at this moment, 42 interested qualified investors. We will see if together we can come up with $1.5 million by the end of the year, so that we can apply for a charter and move forward (see the investor page for details).

If you would like to join our team of Founding Investors, and give me a call.

William Spademan

Uncommonly Good Banking

Common Good Finance President William Spademan is leading an effort to establish the first-ever common good bank. After seven years, the bank is close to taking flight. [Photo by Emi Link

(from The Clean Yield, Winter 2009, Volume 25, Number 4)

Uncommonly Good Banking

Two years ago, a client suggested we look into the Common Good Banks, a proposed network of innovative institutions to be headquartered in Massachusetts’ Pioneer Valley. We looked and were intrigued, but the bank didn’t exist then. It still doesn’t, but now it’s much closer to reality, and we thought readers might be interested in the concept as it emerges.

The core idea is simple: the bank becomes the epicenter of a do-it-yourself, democratic, community-based economy. Give a community of depositors the ability to guide its investment priorities, its use of investment profits, and its “creation” of money, and it can change who is in control. By offering everyone an equal say in what gets funded in the community, everyone gets an equal say in the community’s destiny.

On its face, CGB will be similar to many community banks and credit unions. As proposed, the Massachusetts-chartered bank would accept FDIC-insured deposits, make mortgages and other loans, and have regular checking, CDs, and ATM services–all the usual accoutrements, plus a local- use credit card that will not cost merchants the usual 2% fee.

But what’s really different? For starters, all net profits–beyond the roughly 6% return that is retained by the bank to compensate for “true” inflation–go to a community fund. The fund is then distributed to local and other nonprofits by vote of the investors and depositors; one person, one vote, regardless of account size.

A still more potent difference is the ability of the group of depositors to set priorities for loans. Food coops? A medical clinic? That town office building? Conserved land? Since capital flow largely determines community development patterns, when the local CGB membership sets loan priorities, it becomes a force in guiding that development.

Then there’s “creating” money, no printing press needed. Like most U.S. lending institutions, CG banks can, under law, lend up to ten times the money they originally receive from depositors and investors. Within that generous limit, all the money loaned is simply a figment of bookkeeping entries. This money-out-of-thin-air leverage is nothing new for banks–it’s how even the Federal Reserve creates money– but the community’s control of it is.

A Capital Idea

Common good banks are the brainchild of many, but most notably William Spademan, of late a community organizer and money theorist who has been working on the concept since 2002. He would urge CGB branches to go one step further: create a locally based currency on a par with the dollar. The theory, structure, and mechanics for CGB branches are outlined in a business plan that can be found on the bank’s Web site: www.commongoodbank.com. The big upside of local currencies is that by injecting additional money into an economy–not cash, in this case, but electronic I.O.U.s–a community can knock down unemployment, stimulate socially responsible enterprises, and generate a good deal of healthy community interaction, so-called “social capital.”

Once the first CGB is chartered and has a physical presence, it can be replicated in any community in the U.S. and beyond.

Each bank branch can be established with minimal capital investment–not even requiring a bricks-and-mortar presence–merely by rounding up 50 or so depositors. The branches form under the original bank charter and use centralized bank accounting and common backing for lending, but otherwise each branch is independent, and the profits stay to benefit its community.

Once the first bank opens, stock will be offered at about $1.00 per share. Soon thereafter, shareholders can freely buy and sell their stock through a bank-operated trading desk. That 6% annually retained by the bank to cover inflation? It has the effect of boosting the book value of the bank. This enables investors to get comparable gains when they sell their stock, even though they never see dividends.

Today, the Common Good Bank has an advisory board of some 50 members including several names prominent in the SRI community. Add to that over 20 community-division organizers sprinkled from Oregon and Texas to Vermont, a dozen partner organizations, several legal consultants, and two core staff–one being William Spademan. Most of these are volunteers. A well-qualified CEO-designate and an experienced chief loan officer are biding their time at other jobs until the bank is ready to open its doors.

Comparing Bank of America to Common Good Bank probably isn’t fair. B of A is too big to fail; CGB lacks a few hundred thousand dollars of investment capital even to gain its initial charter. But if measured by social returns and interest (in the nonmonetary sense), the Common Good Bank also seems too big not to succeed.