an opportunity for innovation

A. Introduction

Questions for credit unions:

1. Would you like to attract new members without cost?
2. Would you like to grow without needing to raise additional capital?
3. Would you like to have many more convenient locations for your customers to make deposits and withdrawals and to apply for loans, without additional cost?
4. Would you like to be able to do more business lending?
5. Would you like to reduce risk by getting more income from fees for services and correspondingly less interest income, without substantially changing what you do?

We propose that one or more credit unions partner with the Common Good Bank™ to become a powerful hybrid type of financial institution: common good credit unions. This model gives credit unions all the power of a bank and takes credit union philosophy a step further: benefits will be shared not just among the members but with the wider community as well. (See the proposed partnership agreement or the similar MOU for Banks.)

The bank will introduce a number of innovations to benefit credit union members, local businesses, the wider community and the world (see section C, below). It will attract new members and capital, outsourcing lending and customer service to the participating credit unions. It will provide many convenient locations for basic credit union services and will enable unlimited business lending, resulting in substantial community profits.

Common good credit unions and common good banks together will be the foundation for a new economic system — a democratic, community-based system that puts people and planet first; a system that will support and empower ordinary people everywhere.

B. Background

Our economic system has been severely shaken and financial institutions are still reeling. Customers are disgusted with banks, mortgage companies, greedy corporate executives and even the stock market. They want something better.

Will there be a winning innovation in this time of economic upheaval? If there is, the implication for financial institutions is simple: either you partner with the innovator or you lose big.

What is the next big innovation likely to be in financial services? What do people want, that they’re not getting?

• They want cooperative, community-focused, nonprofit, empowering economics (like a credit union).
• They want plenty of capital for business lending and plenty of convenient locations (like a community bank in the best of times).
• They want social and environmental responsibility (like a green loan fund).
• They want ordinary folks to have a big say in what gets funded, keeping most of the money local (like a community currency project).
• They want good jobs, participatory planning of new industries and cooperative business models (like Mondragon and Transition Towns).
• They want community control and stable low prices on the things they depend on most (like consumer cooperatives).

Credit unions cannot do all this alone. Not without a common good bank.

Common good banks were originally designed to stand alone and will continue on that path if credit unions choose not to participate in the proposed partnership.

C. How will it work?

For details about the common good bank design, see the Common Good Finance website (commongoodbank.com). For details about the proposed partnership, see the MOU for credit unions or the similar MOU for community banks.

• All current operations of the credit union will continue with no change.
• To open an account in the bank, a new member must choose one of the participating credit unions.
• Paired Accounts. When a member opens a Common Good Account, two accounts will be created behind the scenes: one in the bank and one in the credit union. Actually, though, it will consist of a credit union account paired with an account in the bank. Funds will normally be held in the bank account, but will be transferred automatically into the credit union account whenever the member makes a withdrawal (for example by writing a check or using a debit card). Credit union software must be adapted to accommodate the necessary information-sharing and automatic transactions.
• The member must sign an agreement with the credit union, the bank, and the local Common Good Depositor’s Association, authorizing the automatic information-sharing and automatic transactions necessary to make the Common Good Account work. In particular, the member agrees to hold at least 10% of his or her deposit as capital.
• There will be no minimum balance. Accounts will begin empty. The bank will buy a credit union share on the new member’s behalf (structures as a small zero-interest loan from the bank to the member). This will allow the member to open an account at no up-front cost.
• The bank will pay the credit union to help the member open the account. When a member wants a loan, the bank will again pay the credit union to help the member apply and may pay the credit union to service the loan. The bank will also pay the credit union for any customer service and reporting provided for Common Good Accounts.

D. Getting Started:

Here is what a participating credit union must do, to become a common good credit union while minimizing cost and risk. The first two steps sound simple and sensible, but may be the most difficult because they require a change in the way a credit union sees and promotes itself.

1. Commit to advancing the greater good, above all (the good of everyone, not just the good of credit union members).
2. Let go of the view that banks are inherently bad. Fully embrace the ideal of a common good bank / common good credit union system.
3. Help capitalize the Common Good Bank, as permitted by law. For example, secure grant funding to cover some of the bank’s startup costs. Total startup costs are about $1.5 million. Capitalization by credit unions is helpful but not necessary for this partnership.
4. Continue business as usual with all existing customers and investments.
5. Set a policy of transparency, reporting all operations openly except as required by law or where necessary to protect personal information.
6. Modify the credit union’s software to share information and accept pre-emptive transaction requests as required by the common good bank system.
7. Create a “Common Good Account” as a variant of no-fee individual checking accounts and no-fee business checking accounts.
8. Offer the Common Good Account as an option to new members. Customer service people will need training for this.
9. Train loan officers to help Common Good Account holders apply for loans. (The bank’s underwriting criteria will be different from the credit union’s, but credit union loan officers will not be deciding which loans the bank should make, so the new training can be small.)
10. All other startup requirements will be handled by the bank according to its business plan.