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Converting Failed Financial Institutions into Mutual Organisations

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  • Jonathan Michie
  • David T. Llewellyn

Abstract

There are three reasons for promoting mutual building societies: they are less prone than banks to pursue risky speculative activity; a mixed system produces a more stable financial sector; and a stronger mutual sector enhances competition within the financial system. The banking crisis highlighted the importance of retaining diverse models of financial service providers, and while mutuals were affected by the recession, they were not themselves responsible for causing the recession, as were private banks. The UK Government needs to secure a financial return for the failed financial institutions it nationalised and a low level of overall economic risk for the taxpayer. Given a trade-off, the long-run benefits of financial sustainability and reduced risk, plus enhanced competition, need to be given proper weighting compared with any short run gain through a trade sale and the repayment of the government's support. This paper focuses on the case of Northern Rock as the most suitable candidate for remutualisation, and whose disposal is under current consideration, but the analysis applies more widely.

Suggested Citation

  • Jonathan Michie & David T. Llewellyn, 2010. "Converting Failed Financial Institutions into Mutual Organisations," Journal of Social Entrepreneurship, Taylor & Francis Journals, vol. 1(1), pages 146-170, March.
    • Handle: RePEc:taf:jsocen:v:1:y:2010:i:1:p:146-170
    DOI: 10.1080/19420671003629789
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    References listed on IDEAS

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    1. Mr. Martin Cihak & Mr. Heiko Hesse, 2007. "Cooperative Banks and Financial Stability," IMF Working Papers 2007/002, International Monetary Fund.
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    Cited by:

    1. MAREK HUDON & BENJAMIN HUYBRECHTS & Anaïs PÉRILLEUX & Marthe NYSSENS, 2017. "Understanding Cooperative Finance As A New Common," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 88(2), pages 155-177, June.

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