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Is the demise of big banks on the horizon?

Are our banks just too big?

There are many ways you can grow your money.

You could invest in a project, such as installing solar panels, this can be really beneficial and can pay you back many times over the life of the panels, it is also green. Solar is a long-term investment though, so if you want quick returns, it might not be your thing.

You could buy property, become a landlord and earn income via letting it out to tenants.

You could gamble with it, which can have really high returns, however this is rare, whereas big losses arn’t.

You could invest your money in stocks and shares, and hope that the stockmarket value of them increases. This is a risky but potentially very lucrative way to earn money.

Alternatively you could put your money in a bank – or a building society or cooperative. This is probably the safest option.

Big Banks

In the UK, during the 1980’s many building societies changed into banks meaning they were allowed to float on the stockmarket, due to a change in British banking laws.

During this time, many of the banks we know today either turned from building societies into banks or took over smaller building societies. This created the ‘big banks‘ that we know today.

Bank on Dave

A recent television show I watched (called Bank of Dave) made me think about banking a lot more. In 2008 bankers were put in front of a committee of MPs and grilled, as a result of the global banking crisis.

Despite the massive losses many banks have encored, most have still awarded tens of thousand, hundreds of thousand and even million pound bonuses to their top employees.

In Bank of Dave, millionaire David Fishwick, used tens of thousands of pounds of his own money to set up a small cooperative cross building society, which he liked to call a ‘tiny bank’. The reason he did this is because he was sick of banks not lending, acting improperly/indecently/immorally and treating savers badly.

Dave owns a business dealing in minibuses, minicoaches and vans, and noticed that in 2008 when the banking crisis hit, many of his customers could no longer get loans to buy his products. This angered him and was another reason why he started his bank.

Bank of Dave - David Fishwick
David Fishwick – the Yorkshireman who was fed up of the big banks, so set up his own.

In just six months Dave made almost £95,011 profit by simply taking peoples (and before he got all the necessary licences his own) savings (he couldn’t legally say ‘deposits’) and lending them out to local businesses and individuals who were unable to get loans from the banks. The profits (after paying the two employees and presumably himself) went to local charities.

Due to its low overheads and risk, the bank could offer savers an amazing 5% interest rate.

Dave persuaded his local MP to lobby for him and his venture in parliament. Dave also managed to get the Business Secretary Vince Cable and politician Alastair Campbell to appear on the show, both of whom agreed that it was the sort of business/banking that the country needed, opposed to the monopolistic big banks that we have today. Vince Cable told Dave that he would speak to the FSA to try to make it easier for Dave to operate, and more people to start up similar ventures in future.

Most of the businesses the Bank of Dave (officially Burnley Savings and Loans Ltd. for legal reasons) helped, were legitimate and honest local ventures, which grew and thrived when they received the cash they vitally needed either to stay afloat or expand. An amazing 98% of the businesses Bank of Dave lent to were paying back their loans on time at the end of the programme!

The show was a real eye opener to me, as to the way things are currently run and how they could potentially be run.

In the global economic downturn, the UK lenders that have weather the storm well are Nationwide Building Society and the Co-operative. These are not your typical big bank, they are more community focused, ‘friendly’ institutions. Why? Because they don’t pay crazy bonuses, don’t engage in unethical business and are more careful with what they do with savers money – i.e. don’t take high risk gambles.

The show Bank of Dave ended with the commentator saying:

“Could this be the start of a banking revolution?”

I think it could be.

Just yesterday, the ‘safer’ more responsible Co-operative bank made a deal to take a form of ownership of the not so stable Lloyds Banking Group. A big bank that has been cut down to size?

Bye Bye Big Banks?

Considerable awareness has now been raised about the way our banks operate, and whether there is a viable, better alternative.

My thoughts are that if institutions like the Co-operative, Nationwide Building Society and Burnley Savings and Loans Ltd. are doing so well, then they could well be the future. They seem to have greater public support, lend to more people, offer better interest rates, and are less risky.

I think a banking revolution is on the horizon – you heard it here first!

0 replies on “Is the demise of big banks on the horizon?”

You should have a look at the micro banking industry in Africa and other developing parts of the world. A great idea on paper, gives credit to people that could not otherwise get it, but now the banks are finding themselves in trouble. Lots of articles about tell the story. I myself wonder about the wisdom of borrowing money anyway! I am one of the few, no money, no debt. Most of my peers (45 year old Europeans) have no money and loads of debt.

This is a very great article! I know a lot of countries who have opened up and supported cooperatives. This very beneficial especially to those who’d like to start a small business but can’t borrow from the big banks. I myself invested my savings to a cooperative and so far, everything is great!

Many small businesses are struggling to get finance from banks, I agree with you there Toni, so smaller building societies and cooperatives which lend more, are a good idea.

Thanks for the comment, welcome to the blog 🙂
Christopher – Admin Team

Hi Christopher,

You are some how correct in your observations in a way. This is really how business revolutions begin. Frankly, in times like these when things are not moving well economically, those who can think creatively have the opportunity to offer new products and that what this man has done. But on whether this is the end of the big banks, the truth is that it can never be. Even if the little ones succeed and more people turn to them, very soon they will want to go big way and the circle will continue!

I think you’re right here. Big banks have been treating customers like trash for a long time now and people are fed-up. There is a huge rise in micro-loan sites and other online investment channels that pay off far better than the old bank. People see that there are other options and they’re starting to use them!

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