Cooperative bank – what is it and how does it work?

Cooperative bank – what is it and how does it work?

Most of us have come across the term “cooperative bank” and have remembered this phrase somewhere around other banks and finance related terms. But what is a cooperative bank really? I will try to bring this institution a little closer.

Cooperative banks – slightly different banks than usual

A cooperative bank could be compared to a joint stock company and cooperatives to shareholders, but it would be a very distant comparison. The rules of operation of both entities are different, as well as the motivations of those who decide about the company’s fate.

To put it simply, investors buy company shares to make a profit. They hope that the money from the new issue for the purpose described in the prospectus will allow the company to gain a competitive advantage, which will increase its value. Similar motives are followed by those who buy shares on the secondary market. Looking at the company’s management, market situation and other elements, they hope to increase the value of its shares.

In the case of cooperative banks, profit on shares held is not the most important motivation of those who join the cooperative. Right, to the cooperative, not to the joint-stock company. A significant difference concerns the right to vote at the general meeting of shareholders. In a joint-stock company, the number of shares held affects the number of votes at the general meeting of shareholders. In the cooperative, each shareholder has one vote, regardless of the value of their shares.

Motivations of cooperative bank shareholders

Motivations of cooperative bank shareholders

If no profit is possible due to the shares held, what drives people to join cooperatives and buy shares in cooperative banks? The motivation is access to financial products offered by the cooperative bank on more attractive terms for its members. That is why shareholders often become representatives of professional groups that have difficulties obtaining loans in commercial banks, e.g. farmers, craftsmen, small entrepreneurs. By purchasing participation for a small amount, cooperatives can also influence the development of their neighborhood, supporting specific cultural, economic and social initiatives. That is why it is often said that cooperative banks fulfill the role of local business incubators and are conducive to building a civil society. They are also the “ambassador” of modern financial solutions in smaller centers.

Years ago, the natural area of ​​activity of cooperative banks were villages and small towns. They were often the only banking institutions operating in the area, providing residents with access to banking products. Today this division cease to exist. Commercial banks leave large cities and are located in small towns and villages (often through a network of franchise outlets). On the other hand, cooperative banks are bravely entering their offer, with their idea, into large agglomerations. Competing with commercial banks is facilitated by the fact that they operate in associations of cooperative banks (Spółdzielcza Grupa Bankowa and Bank Polskiej Spółdzielczości associate a total of over 570 cooperative banks), their offer is more flexible, tailored to the needs of various professional groups, taking into account the specificity of their activities.

Principle of cooperative banks


Cooperative banks operate in accordance with the rules typical of cooperatives and conduct their activities on the basis of cooperative law of 16 September 1982 and the Act of 7 December 2000 “on the functioning of cooperative banks, their associations and affiliating banks”. They provide that

“A cooperative is a voluntary association of an unlimited number of people (…) conducting joint economic activity in the interest of its members on the basis of economic settlement (…)”.

Only natural persons (must have a minimum of 10) have the right to establish a cooperative bank, and they must have sufficient capital.

Strategic decisions regarding the development of a cooperative bank are made by the general meeting. The board is responsible for the daily functioning of the cooperative, which is controlled and accounted for by its supervisory board’s decisions.

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