# Remutualization By [winstonlamoine.eth](https://paragraph.com/@winstonlamoine) · 2022-02-01 --- 6/4/2020 “Pay it back, pay it forward” In the commercial banking and lending model, shareholder returns in the public markets are dependent on charging high interest rates on loans (the most extreme example of this being the payday lending industry; less extreme examples being established financial institutions such as JP Morgan, Wells Fargo, Bank of America, etc.). Commercial banks and lenders generate high returns by leveraging the strength of their brands and the fact that less established consumer customers typically have an immediate need for capital when they go to borrow money. This allows lenders to charge these customers premium interest rates, specifically on unforeseen unsecured debt needs. But excess returns on unsecured debt should never be used to compensate stockholders, and the alternative future of unsecured consumer lending is cooperative instead. And there already exists strong examples of cooperatively minded banking institutions in the United States today –  a pivotal reason why most people are unaware of this (and why most individuals take the “de facto” commercial banking model for granted) is the deregulation that occurred in the name of free-market capitalism during the 1980s. The narrative that evolved around the savings and loan crisis specifically in the late 20th century gave the entire mutual banking industry a bad rap in the United States. Interest rate fluctuation and the mishandling of government deregulation, not the core concepts of the cooperative banking model itself, compromised the financial position of in the mutual savings bank industry. Following the disruption, thrift conversions (single step process of offering shares in the mutual banking institutions to the public) were a highly attractive investment opportunity for private capital, providing ample incentive for widespread abandonment of the model altogether. Its time cooperative banking made a comeback. Credit unions are a less common form of non-profit cooperative financial institution, managed by groups of people with a "common bond." Groups of people with this common bond pool their funds to form the institution's deposit base; the group then owns and controls the institution together. Membership in a credit union is not open to the general public but is restricted to people who share the common bond of the group that created the credit union. Typically examples of this common bond are working for the same employer, belonging to the same church or social group, or living in the same community. Credit unions seek to encourage savings and make excess funds within a community available at low cost to their members. Until the 1970s, credit unions offered only savings accounts and consumer loans. Now, however, credit unions' financial powers have expanded to include almost anything a bank or savings association can do, including making home loans, issuing credit cards, and even making some commercial loans. Credit unions are exempt from federal taxation and sometimes receive subsidies, in the form of free space or supplies, from the sponsoring organizations. But credit unions manage only a tiny fraction of the total financial capital available to consumers (billions as compared to trillions). The three largest commercial banks in the U.S. all manage over $2tn in assets, while the third largest credit union manages on $25bn in assets. Credit unions can do everything that commercial banks can do but are hamstrung by regulations that mandate strict membership criteria and dampen growth of the asset base. What if equity investments and charitable contributions were used to grow the “deposit base”? Remutualization of the financial services industry in the United States and a cooperative banking resurgence is the most viable path forward for the financial services industry in the United States. --- *Originally published on [winstonlamoine.eth](https://paragraph.com/@winstonlamoine/remutualization)*