What are the disadvantages of credit unions

Guest comment: Control problems of converted credit unions

The group of owners of Commerzialbank Mattersburg im Burgenland AG is divided into two parts. Almost 80 percent of the share capital was held by a cooperative with the long name Personal Loan and Commercial Loan Mediation and Share Management Cooperative Schattendorf-Zemendorf-Stöttera-rensdorf-Hirm-Loipersbach-Draßburg-Baumgarten. This cooperative goes back to a Raiffeisen bank. The founding year is 1929. The cooperative Raiffeisenbank brought its banking operations into an AG in 1995 and became shareholders of the bank with its members, as well as individual private individuals, including the bank's chief executive.

This double structure, as provided as a variant in Section 92 of the Banking Act, can also be found at the Linz VKB-Bank AG, which was converted in 1981, some regional Volksbanken and Raiffeisenlandesbanken or the Bausparkasse Wüstenrot in Salzburg. The Bank for the Common Good was designed like this.

This structure has the advantage of preserving the cooperative group of owners without the bank's capital being affected by the members of the cooperative leaving the company. Compared to a pure credit cooperative, the main disadvantage is that only one representative represents the cooperative at the bank's general meeting. Decisions at bank level are prepared in the cooperative if they have to be decided there. Many decisions are made without the cooperative having to participate directly and ask its members. The cooperative and individual shareholders were among themselves at the general meeting of Commerzialbank Mattersburg.

The influence of the individual member was correspondingly small compared, for example, with the Raiffeisen banks and Volksbanks, which have more than 10,000 members of a comparable size - each with one vote. The banks are audited by a cooperative auditing association. Even if the attendance at general assemblies is very different, they represent a special event in many places. In such a framework, an indirect control also takes place. The activity and participation of a broad group of members is declining at investment cooperatives. Sometimes the members do not find out about the date of the meeting in time.

Control shifts towards the bank, even to the point where management and controllers are identical. Understandable when problems no longer penetrate the outside world. The further development direction with members as shareholders of the bank and a share trade - internally or via the stock exchange - has in most cases led to these comparatively small institutes perishing or being taken over. The Mattersburg example shows that this did not even take this step. It would therefore be recommended to all institutes that work in this dual structure to activate membership or to return to the pure cooperative.