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November 6, 2013

A bank that offers salvation

Many people believed that in the Coop Bank they had found a bank that looked like a bank and felt like a bank but yet behaved in a way that was driven by ethical values and not the vagaries of the free market.  Many of the same people will have been disheartened to learn that their bank has fallen prey to a group of US hedge funds. Whether there’s a mass upping of sticks and moving elsewhere could depend on whether there’s anywhere to go. Seems there is one remaining paragon of banking virtue. 


Patrick Collinson and Rupert JonesThe Guardian, 26 October 2013

It has never sold payment protection insurance. It has never had a customer complain to the financial ombudsman. It has never been fined by the regulators – and it was certainly not mixed up in the Libor scandal. Yet it offers customers a full current account service, with debit cards, cash machine access, savings accounts, cash Isas and internet banking. As Co-op Bank’s 4.7 million customers reel in shock at its effective takeover this week by US hedge funds, many are looking at ethical alternatives – and Reliance Bank for the first time in its century-long history is finding itself in the spotlight.

Founded in 1890 as the Salvation Army Bank, today it has assets of more than £200m, much of it from churches and charities as well as private customers. It says its mission is to “stand out as a bank with a Christian and ethical conscience”, donating 75% of its profits to the Salvation Army – which still retains control of the bank despite the bank’s name change to Reliance.

Throughout the financial crisis Reliance Bank has remained in profit – which it puts down to its low-risk, ethical business model – and it has the sort of internal capital ratios and financial safety cushions that the major high street banks can only dream of.

It does confess to paying bonuses – which critics say drove other banks into reckless risk taking. But while Barclays handed shares worth £70mto one individual, Rich Ricci, at Reliance the five top managers shared a bonus pool of £2,446 last year (no, we didn’t forget to put an ‘M’ at the end of that) – £489.20 each – although they still felt incentivised enough to run a bank. Reliance says it has an absolute ceiling on bonuses of 10% of salary. Its managing director designate, Paul Underwood, says: “The other banks are being encouraged to go back to basics. We never deviated from that in the first place.”

Reliance’s 5,000 customers are covered by the Financial Services Compensation Scheme, and it offers mortgages at rates starting at 2.49%. But it won’t give you a credit card. “Our shareholder [the Salvation Army] thinks credit cards are part of the problem with society,” says Underwood.