Community Banks — like all banks, make money by lending at higher rates than they borrow. However, unlike regular banks, their borrowers slowly acquire Capital by purchasing from existing shareholders as they repay loans. Investors get their returns as annuities. All depositors become shareholders, and all borrowers become shareholders. The bank will make money if its borrowers pay a higher interest rate than shareholders receive and the borrowers repay their loans.
The bank only lends to organisations that, in turn, use Community Capital. Again those organisations do not fail — instead, they fade away, and the bank can work with the organisations to make the fade away orderly.
Depositors cannot make a run on the bank because depositors are investors. They purchase shares in the bank, and the only way they can get money out of the bank is to sell shares. They are guaranteed to be able to sell some because they are required to sell some each month to borrowers who repay loans. The approach creates an extraordinarily stable bank as it cannot fail — but it can gradually lose Capital with bad loans. The bad loans decrease if the bank lends to Community Capital Companies or Community groups.
If a bank makes bad loans, it is immediately apparent to all shareholders, and they can take measures to stem the losses.
The Central Bank or Government can control the economy by speeding up or reducing the rate at which investors sell their shares. It allows fine-tuning of the economy as loans in particular sectors can be adjusted independently.
An economy with many Community Banks will be highly stable and expected to have a zero inflation rate.
Find more on Community Banks here and more on Community Capital Markets here.
