Essential CGB System Features for Today's World
When a feature says here "works ideally too", this is intended to mean that the feature also works sensibly for the common good in a world where all communities are Common Good Bank communities.
- Chartered as a stock savings bank. [Why] Works ideally too, but may be discontinued when legislation enables a consolidated CGB model.
- Interest is charged on loans. Works ideally too, but may sometime be adjusted down to (or below) 0%, whatever makes sense for each loan. Interest is charged for several purposes:
Many money theorists mistakenly believe that interest creates an unsustainable system, but that is not true [see this article: The Evil Interest Fallacy].
- to finance the bank's operations
- to cover the losses from loans that never get repaid
- to compensate for inflation
Others (in particular, followers of Islam) believe that interest is inherently unjust. However, on reflection they can usually see that the injustice lies in an individual's acceptance of interest. In the CGB system, no individual receives the interest that is charged on loans, since all of the bank's profits go to the community. And individual depositor/owners receive no more than an inflation-rate return, which is no increase in value, so it is "interest" only in the perverted sense that the term is used in our current inflationary economic system.
In most cases, depositors are in reality paying a service fee on their deposits, rather than receiving increased value (even though the numerical measurement of that value increases, as the unit of measure decreases). Member/owners receive an inflation-rate return on their stock, which is a 0% return in real terms (see #12, below).
- CGB offers conventional accounts also so that Common Good Accounts can default to sensible options. Otherwise, depositors would by law have to "opt in" for each individual feature of Common Good Accounts, which would also imply offering conventional accounts. This dichotomy will be discontinued (provisionally) when regulations change to allow Common Good Account features to be the defaults.
- Stock acts like deposits. At least 10% of each person's Common Good Account deposits are automatically held as stock — works ideally too. Bank regulations require an "adequate" capital ratio (the ratio of total bank stock to total assets). Banks with too low a ratio can be shut down. Ten percent is considered a healthy ratio (more than adequate).
These automatic stock purchases and sales and the planned (stable) resale pricing will be handled through the Depositors Association. Treating stock like deposits allows even low-income depositors to be full participants in the system and allows the system to grow continuously without the difficulty, expense, and uncertainties of ad hoc stock offerings.
- Members can formally support specific business loan applications by committing their own credit — works ideally too.
- Securitization. Members implicitly agree to secure any loan to a risky project that they approve, not to exceed ½% of their average deposits and not to exceed 5% total for all such loans. This feature applies only to "risky" projects — that is, projects for which regulators would require extra loan loss reserves. We expect that most of the bank's loans will not be risky, but this system allows communities to make more risky loans than the bank might otherwise make and aligns members' personal interests more strongly with the success of those loans. We expect that the community support itself for such "risky" loans will help those loans succeed. The percentages may be adjusted up, in some communities.
- Patronage commitment. A member can commit to buy a certain value of goods and services from the business over a certain period. This works like a CSA (where customers pay in advance for fresh produce) except that the customer does not pay in advance, yet the borrower gets the money when needed.
- Loan participation. The member can agree to participate in the prospective loan by committing to lend to the company at an inflation-rate return, provided that the application receives funding. This option has no financial benefit to the individual member, but allows members to show the strongest possible support for the prospective loan. In the extreme, a loan could be financed entirely by members directly, without bank involvement. This is the equivalent of a local stock exchange for small businesses, but with returns limited to the inflation rate.
- Separate system for innovative financial cooperation at the community level (Depositors Association) To be discontinued by consolidating when legislation enables a consolidated CGB model. This is a crucial piece of the CGB plan. Community members can cooperate financially by formal mutual agreement, in ways that a chartered financial institution cannot accommodate. The CGB model allows fluid interaction between these two financial entities — one regulated as a financial institution and one ruled more simply by contract law — so that they can operate almost as though they were a single entity.
- Separate stock transfer company. Separating this function from the bank allows the Depositors Association to treat stock like deposits, by setting the resale price and automating stock sales between members. Also, there can be a single transfer company serving multiple Common Good-type banks and Depositors Associations (probably one per country).
- Separate nonprofit. A separate nonprofit organization serves several purposes in the CGB model (see Nonprofit Sponsor Design). It is particularly important to have a separate formal not-for-profit entity that can oversee the not-for-profit spirit and functioning of all the (formally for-profit) Common Good-type banks, as well as the Depositors Associations and Transfer Company.
- Money created by the Depositors Association acts just like other money. Works ideally too. Part of the original impetus for the Common Good Bank project was our experience that people will shy away from anything that is too distant from the mainstream or that requires extra work. The Common Good Bank system allows us to treat all money equally, on a par with national currencies, regardless of how and where that money is created. With this power, of course, comes a responsibility to create and manage money prudently (see Let's Create Money As Debt!).
- Real-time automatic information-sharing about transactions, and pre-emptive transaction requests. Works ideally too, but may be discontinued when legislation enables a consolidated CGB model (no apparent need). These two features are the crucial pieces that allow the bank and the Depositors Association to act as one.
- Minimum monthly balance by depositor group. To be discontinued when legislation enables a consolidated CGB model. This feature drastically reduces the number transactions required to maintain account balances that accommodate properly both bank policy per se and CGB system functionality.
- Exactly 0% return (in real terms) on stock. Works ideally too, but may be discontinued once all money is created by CGB community divisions.
- Exactly half the profits are granted outside the community and half that half outside the country. Works ideally too. Setting exact proportions frees communities from having to discuss each time how to balance self-interest with assistance to others.
- All lending will be to individuals, businesses, and organizations in Common Good Bank communities or their immediate neighbors — works ideally too. This policy is important so that Common Good Bank staff can make loans knowledgably and provide oversight and assistance to the borrowers and so that Common Good Bank members will have a stake in the success of those loans.
- More than one formal CGB financial institution; depositors migrate automatically if their CGB fails. Works ideally too. Conventional banks may see the CGB system as a threat and may lobby successfully for the chartered bank to be shut down. We can protect the system by chartering one or more additional formal Common Good-type banks in other countries, so the CGB members have a spare infrastructure, not susceptible to the same forces.