Banking for the community in an era of financial turmoil: Airdrie Savings Band & the issue of bank ownership and governace

Abstract

It is possible to view the recent financial crisis as a direct result of the liberalisation of banking and financial structures and the regulatory framework which have occurred over the past two decades. Liberalisation and deregulation demolished the division between traditional risk-averse prudential banking and the more risk-friendly world of merchant and investment banking. It cultivated an atmosphere in which consolidation of the financial markets and institutions became the norm and where corporate profitability, linked to success in what later proved to be frenzied and unsustainable risk-taking, become the over-riding feature. This paper focuses on the success of the one local savings bank which refused to join the amalgamation of the regional TSB structures prior to demutualisation, Airdrie Savings Bank (ASB) and which has remained committed to remaining as a local institution serving depositors and borrowers in the North Lanarkshire region. In comparison with the former savings banks, ASB has not required state support, it has not indulged in complex investment products and it has one of the lowest provisions in the UK banking industry. During the period of the recent financial turmoil, the ASB increased its customer deposits, improved reserves and expanded profitability. The lessons derived from ASB case are meaningful in terms of the perspective of the bank as a community utility, serving depositors and lenders. It may also provide for consideration of the possibility of returning parts of the nationalised banks to member ownership rather than a return to the status quo. Further the paper also reviews the issues of governance and ownership models for banks and providers of financial services.