The co-operative banking network operates its own deposit protection scheme, for which each bank pays a risk-related levy. It uses rating methods and individual audits to make sure banks don’t take too much risk, and can take preventive measures, such as requiring a bank to restructure.
In effect, network members guarantee each other’s lending.
Co-operative principles apply not only within individual banks but across the sector as a whole, with stronger banks supporting weaker ones. Risk is also shared to some extent via the central banks (for instance, through securitisation).
This meant co-operative banks could stay small and local, and prevented them from taking excessive risks. Because of this, the German co-op banking sector required no public funds in the recent financial crisis: the few bank failures were handled within the sector itself.
Read the full article at Co-operative News
Go to the GEO front page