April 05, 2006
Common Good Bank Advances One Branch of Community Investing Evolution
by Bill Baue
The bank promotes the common good by distributing excess profits to the community and by making all
lending and spending decisions through participatory democracy.
The establishment of the Common Good Bank
in Western Massachusetts is sowing the seeds of evolution in community investing. While the Common
Good Bank model shares elements of community investment--including a focus on community
development, small business lending, and financial empowerment of populations underserved by
traditional financial institutions--it breaks new ground in three areas.
is dedicated to advancing the good not just of certain populations, but of all, from the
local to the global community as well as the health of our planet. Second, it will distribute
returns to members while granting (not loaning) net profits to the community with priority placed
on those in the most need. And third, members will control the bank's lending and spending through
"The Common Good Bank project arose not out of any perceived
inadequacy in our local community banks--in fact, we are fortunate to have some very good mutual
banks and credit unions in our region," said William Spademan, who is helping to found the bank.
Mr. Spademan also works with the bank's nonprofit assistance company, the Society to Benefit
Everyone (S2BE). "Common Good Bank is more of a
response to the structural deficiencies of our whole governmental and economic system."
"Common Good Bank is not intended to replace or compete with existing nonprofit efforts or
financial investment in the community," Mr. Spademan told SocialFunds.com. "Rather, it is intended
as a vehicle for generating additional funding for such efforts and for expanding the scope of
local giving to include the wider community and the world."
The diverse list of models for
the Common Good Bank include not only ShoreBank, which pioneered
community investing in Chicago in the early 1970s, but also Grameen Bank, which pioneered in microfinance in India
later in the decade. The Common Good Bank model also melds elements of both capitalism and
socialism with barter economies and alternative currencies, and even finds inspiration in the
decentralized cooperation of ants and the distributed intelligence of the human brain.
"Following the same principles as Gandhi's constructive program, Common Good Bank aims to
create an ever more democratic, sensible, and compassionate political and economic infrastructure,
by starting small and growing from within the current system," said Mr. Spademan.
past several years, bank founders experimented with several different business
strategies for fulfilling their vision, including a credit union and a federally chartered bank,
before landing on the most feasible strategy of a state-chartered stock savings bank. While the
bank cannot offer stock until after securing regulatory approval (probably six months before its
launch, slated for a year from now in Shelburne Falls, Massachusetts), supporters of the concept
can become founding investors in several ways, such as advancing at least ten percent of their
intended investment as a zero-interest loan (or gift) to S2BE.
The bank intends to raise
$5 million from 3,300 founding investments of about $1,500 each, and invest this advance in a
socially responsible investing (SRI) mutual fund or insured account. Interest or returns on this
advance will help the bank get up and running, and the founding investment loans will count toward
actual stock purchases once the bank opens. Potential annual returns on bank stock are capped at
prime (currently about 7.75 percent) minus 1.5 percent.
To keep from having to report to
the Securities and Exchange Commission (SEC), as well as to state and federal bank regulators, the
bank prohibits stock purchases from out-of-state investors. These investors can still support the
project, however, through loans to S2BE. Barring out-of-state investment also fulfills other
First, it encourages the spread of the Common Good Bank model to
other communities, an explicit goal of the model. Second, given the democratic control structure,
it "radically reduces the possibility of a hostile takeover," according to the bank's business plan which is posted online for
all to see.
The bank's participatory democracy melds elements of direct voting, direct
representation by revocable proxy, paired instant runoff, range voting, approval voting, internet
voting, and town meeting style discussions. Members each get one vote, which they can cast
themselves or assign to a representative who casts a proxy vote.
"A popular and trusted
Representative may vote on behalf of many constituents," states the Bank's website.
Members can change their votes for a week after they are cast, and can change their
"The approval method is the fairest and kindest democratic
method," the site states, referring to the voting by approval method with instant runoff. "Issues
are presented as multiple-choice questions."
"You grade all the options that are
acceptable to you (A, B+, etc.)," it continues. "The most preferred acceptable option wins."
The mission of the Common Good Bank directs all investments to be socially responsible,
prioritizing first the well being of all individuals, second the cooperative achievement of peace
and justice, and third the sustaining of a healthy planet. SRI firms can invest in the bank, as
they do in many community development financial institutions (CDFIs), with the return capped at the
same rate as for individuals, at prime minus 1.5 percent.