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Answers
Why a bank? Why not a common good credit union?
Common Good Bank Community Divisions are designed to be not-for-profit, community-spirited businesses. So why not organize them as credit unions, an already-existing legal structure for tax-exempt, nonprofit, democratic financial institutions? The short answer is that banks can do more than credit unions. By combining the community spirit of a credit union with the power and growth potential of a stock-based bank, Common Good Bank communities can do far more than either a bank or credit union can do alone.
Greater democracy is at the center of this greater power. Like most democratic systems, credit unions and mutual banks are representative democracies. So you only get to elect the people who make the decisions -- you never get to participate in any interesting decisions yourself. In particular, you don't get to decide what the bank should invest in or where the profits will go.
Mostly this is because of the way credit unions and mutual banks are regulated. Business lending is severely limited or even prohibited for most credit unions. And both credit unions and mutual banks are regulated in a way that prevents them from giving away very much of their profits and prevents them from growing quickly. Here's how it works:
All banks and credit unions are required to maintain adequate capital. For stock-based banks, of course, capital means stock. For credit unions and mutual banks, adequate capital means retaining enough profits so that the ratio of net worth to deposits is at least 7-8%.
For example, let's say a credit union has assets of $108 million - $8 million above and beyond the $100 million that it has borrowed from the depositors (as deposits). In the view of the regulators, it has barely adequate capital. Now let's say the credit union wants to expand by 10%, accepting another $10 million in deposits. It cannot do this until it has earned $800,000 more (or received a grant for that much), after all the costs of doing business. The credit union cannot give those profits to worthy causes; it must hold onto them indefinitely.
Now look at a similar situation in the Common Good Bank model. Say the bank has sold $8 million in stock and has $100 million in deposits. In the view of the regulators, the bank has adequate capital. Now if the bank wants to expand by 10%, all it has to do is sell another $800,000 in stock. Typically, Common Good Bank depositors themselves will buy that much stock. Meanwhile, any profits made by the bank (about $1 million a year in this example -- the same amount of profit as a credit union would make) can be given to food pantries, public education, or whatever the members decide. So the bank can grow much more quickly and give much more to the community than a credit union can.
In spirit and in effect, a Common Good Bank community is a credit union organized as a stock bank, in order to advance the greater good more effectively.
top Will the Common Good Bank be insured by the FDIC?
Yes.
However, do not place too much trust in the FDIC. If many banks fail at once, the FDIC will not be able to help. Unlike other banks, Common Good Bank communities are designed to provide local economic stability even in the event of a national or global economic collapse.
Sure it's good for the world, but what's in it for ME?
There are many benefits to individual Common Good Bank depositors and borrowers, compared to conventional banks and credit unions. Quantifying or even listing those benefits can be challenging, because the Common Good Bank model is so community-focused. Nonetheless, here is a specific example in which an individual might save 40% on his or her deposits, while sharing in $1,100,000 of community benefits.
top Can I make a deposit now?
No, you can't make a deposit until the Common Good Bank opens. However, you can help NOW make it possible with a no-obligation 10-second signup.
top What will the interest rates be on deposits and loans?
No Common Good Bank exists yet, so by law we cannot discuss interest rates, except to say that we plan to offer rates that are competitive with what other banks offer.
top Can I invest now?
If you qualify financially, then yes. Take our short Investor Survey and we'll let you know. Otherwise, you have to wait until the Common Good Bank gets a charter. You can help make that happen, in any case, with a no-obligation 10-second signup.
top Why will common good banks use the fractional-reserve system?
Many people who have become disillusioned with our current economic system mistakenly believe that the fractional-reserve system is the problem.
In the fractional-reserve system, banks are allowed to lend out a certain large fraction of the amount that has been deposited. In the United States, this fraction is 9/10. Each loan creates new money, which can then be deposited in the same bank or in a different bank. Most of that money (the same fraction) can then be lent out again, creating more money, and so forth.
Overall, the result of this practice is a several-fold increase in the country's money supply (for example, by a factor of ten in the United States). But each bank is limited to lending 9/10 of what it has received as deposits, so it is not always obvious from the banker's point of view that any money is being created.
The name "fractional-reserve" is meant to suggest that something is being held "in reserve". However, since almost all money is just database entries, nothing real is held in reserve and nothing real is lent out. For example, even if you deposit a million $1 bills, the bank can lend out $900,000 and still have every one of those dollar bills in the vault. All money, including paper money, is just an accounting system, keeping track of who is entitled to how much goods and services. The so-called reserve is simply an accounting rule that limits how much money a bank can create as loans.
The fractional-reserve system benefits some banks more than others. Common Good Bank communities will encourage borrowers to spend their money locally and especially to use their borrowed money to pay other Common Good Bank customers, so that the Common Good Bank (instead of some other bank) can lend that money out again, for the greater good of all.
top Where did this idea come from? Where is it being done?
There is no bank like this anywhere in the world, as far as we know. Yet nothing about the Common Good Bank plan is actually new. Every piece of the plan is widely used -- just never in this powerful combination. Check out the influence links in the paragraph below.
The idea for Common Good Bank began in 2002 in Ashfield, Massachusetts, a small rural community in the foothills of the Berkshires. It began with a spiritual imaging exercise and informal theoretical discussions on how our society — especially our economic system and governance — might be restructured to work better, to create a more peaceful, just, and environmentally sustainable world. Inspired by dozens of other economic systems and democratic systems, through many surveys, discussions, experiments and detours, the Common Good Bank model evolved. Hundreds of professionals and volunteers have contributed to the design.
Most of the labor for researching, developing and promoting this project has been volunteered. We have raised over $100,000 in contributions, including many in-kind gifts. We are still seeking additional contributions to cover the expenses of securing a charter for the Common Good Bank. (You can help by making a donation of any size. Please do.)
For a more personal account of the early stages of the project, see this article by our Project Director, that appeared in the Quaker publication Friends Journal, July 2006.
top Why hasn't anyone done this before?
Every individual piece of the Common Good Bank plan has already been done successfully elsewhere (See "Spectrum of Economic Systems" and "Where Is Common Good Democracy™ Used"). No one else put all these pieces together in this way because no one thought of it. Until now. And it took hundreds of people working together to come up with this synergistic combination.
Moreover, it ain't easy to start a bank. It takes a lot of money. Since no one will be making a large personal profit from this bank, a couple dozen community-minded people will have to put in $50-$100 thousand each AND thousands of people of lesser means will have to invest what they can comfortably afford. (According to securities regulations, only individuals with over a million dollars net worth can invest in a bank project before it gets a charter.)
top Won't the Common Good Bank just get bought out by a bigger bank?
No. Common Good Bank organizing documents will contain several provisions to prevent a takeover. For example, return on investment will always be limited to the true rate of inflation, which will make any takeover bid financially unrewarding. No one would want to take over the Common Good Bank! Also, the common good aspects of Common Good Bank are contractually subject to oversight by the Society to Benefit Everyone, Inc., which owns the "Common Good Bank" name and logo, so if the bank stops conforming to the Common Good Bank model in any way, it will cease to be called a Common Good Bank.
The clincher is that voting is one-person one-vote, rather than one-share one vote, and a 5% minority can veto any proposal that is morally reprehensible (see the section on Common Good Democracy™). So a larger bank trying to acquire the Common Good Bank would have to convince 95% of the depositors to give up their control. Since each community division of the Common Good Bank will vote independently after public discussion and debate, the chance of 95% being successfully hoodwinked is vanishingly small.
top If return on investment is limited to the rate of inflation, why won't investors just buy government bonds instead?
First of all, the true rate of inflation of the dollar is consistently higher than the United States government reports (see, for example, George J. Paulos: "An Alternative Inflation Index", September 08, 2004). Until a credible and reliable measure of inflation is developed, Common Good Bank communities will calculate inflation (and therefore the expected resale value of Common Good Bank stock) as prime minus 1.5%. Over the past thirty years, the true rate of annual inflation and prime minus 1.5% have both averaged out to about six percent.
Many investors will invest in Common Good Bank because they care about social and environmental "returns" as well as financial ones. Low-income depositors will invest small amounts because, by design, stock in Common Good Bank will act more like a high-interest one-month certificate of deposit (CD) than like typical stock. Also, by design, stock will be so easy to buy and sell, through simple transfers to and from a checking account, that depositors will be happy to choose a higher interest rate than they receive for their ordinary deposits.
top How will the Common Good Card work?
The Common Good Card™ will work only between two customers of the Common Good Bank. Otherwise the buyer has to write a check, use a major credit card, or pay cash. Common Good Bank member merchants can accept the Common Good Card just like any other card, using their existing swipe machine (saving 2%+).
The Common Good Card will be processed by the Common Good Bank's own computers. If the merchant has a card swipe machine, then the Visa/Mastercard network charges the Common Good Bank a flat rate of 27 cents per transaction, which the Common Good Bank will absorb. You can also use a text-message from your cell phone, touch tones on your land line, or a visual interface on your smart-phone or internet browser. In all five cases the message goes to the Common Good Bank computer which simply debits one account and credits another.
As a Common Good Bank member you can also use your cell phone, land line, or internet to transfer funds to any other Common Good Bank customer -- either for a purchase or in exchange for cash.
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