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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.

First, it 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 participatory democracy.

"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 "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.

Over the 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 important functions.

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 representative anytime.

"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.


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