And I respond in the comments:
The way credit unions operate goes against the orthodoxies of finance.
Well, not so much.
Actually, it’s pretty much the basics of banking and has been for a number of centuries.
Lend money at interest to those you think will pay it back. Borrow the money at a lower interest rate from a different group of people. The second group are your depositors.
That plus borrowing short and lending long (ie, you tend to lend the money out for longer periods than you borrow it for) is banking.
“Unlike the banks, it can only lend money that it actually holds: its deposits total about £1.5m, and there’s £1m on its loan book.”
This is also true of any bank. Loans must equal deposits plus capital. And the big banks make very sure of this too, they balance their books at the end of every banking day.
The difference is that if a big bank has lent out more that day than it has taken in in deposits then it goes and borrows it from another bank: that is, it gets a deposit from another bank to make the books balance.
This is known as the interbank market and it’s worth about £20 trillion a year in movements of money.
That interbank market is just another way of getting more deposits.
It is true that credit unions don’t tend to use the interbank market but there’s no theoretical reason (nor legal as far as I know) that they cannot. It’s a choice they make.
“Now, BANKs, they don’t work like that. If a bank has £10 it can lend £80 pounds. It doesn’t make sense but its the law. It’s called leverage.”
This is not true. The banking system as a whole, because of fractional reserve banking, does work out that way. But it is not true for any one individual bank. One individual bank must match loans against deposits and capital.
BTW, just so you know, baby eating neoliberal bastards like me, you know, near fascists in pursuit of capitalism…..we’re all in favour of credit unions. Mutuals of all types indeed. You want to organise your affairs that way then you just go right ahead. It’s your money and your life and we’re the guys who applaud your liberty and freedom to do as you wish with both.
“She’d been brought up in care and had virtually no idea of what officialspeak calls financial literacy.”
Something of a condemnation of the State there, don’t you think? If, when responsible for the entire education of a child, they fail so badly then why do we insist that said State must be responsible for part of the education of all children?